Our Trip to Asia
At Pathfinder, our analysts and portfolio managers meet with companies on a regular basis. Sometimes in our office, but often we travel to meet management in their offices or at conferences put on by various stockbrokers. Depending on the mandate, the companies that we invest in are local, across Canada and the US, and around the world. For example, our Resource Fund has companies from Latin America and Africa, and our International Fund more recently has had a focus on Asia. If we are going to do the work to truly understand the business that we own, speaking with management in person is the best way, in our opinion, to get a thorough understanding of what we own and why we own it. This fall we travelled to both Japan and China to meet with management of companies that we currently invest in and a few that we are considering for potential investment.
We reproduce Figure 1 from prior issues of the Investment Outlook, but in this case, we have “zoomed” in on the data so that you can see where valuations have been over the past year. In our Annual Outlook, we pointed out better valuations available in Japan and China and noted that we would look to expand our holdings there.
In Japan, we met with semi-conductor production equipment & business automation companies. Recently Japan has emerged from decades long deflation, which provides a good setup for equities. Furthermore, we have been pleasantly surprised by the evolution of management. It is taking time, but we are seeing more focus on efficiency of cash flow, reduction of cross shareholdings, and friendly shareholder policies like buybacks & stable dividend payout ratios.
In China, we met with companies from a wide variety of industries including robotics, business automation, aerospace manufacturing, infrastructure, large banks & stock exchanges. China is a huge economy that needs balancing, especially with respect to internal consumption. There are many great opportunities, but a short-term approach to management and investing means that one should be very thoughtful about deploying capital.
“This means that” Asia is a very broad and deep economic zone. With positive valuation differentials and an improving economic set up, we will continue focusing our research efforts there.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
For more information, please follow the links above to review the fund term sheets.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.