Pathfinder Real Fund – Kinaxis Inc.
Since the end of February, we have been focused on writing about “macro”. As discussed in last week’s Outlook, macro refers to large broad themes, theses or data points that describe something in aggregate. For example, over the past week, we received much better than expected US Retail Sales data and stocks subsequently rose. There was also growing concern about COVID19 cases in the Southern US, which caused stocks to drop. This is what is typically referred to as “volatility”. While the macro situation impacts all companies, it is investments in individual businesses (i.e. the micro) that actually make up the portfolios at Pathfinder. By focusing on the micro, we have found that not all companies are negatively impacted by these events. For example, there are companies whose business models have made them effectively recession proof and others who actually see accelerated demand for their products as a result of the pandemic. We believe particular disconnects between share price and fundamentals creates the opportunity to invest in good companies at very attractive prices. Over the coming weeks, we will provide an example of this from each of our portfolios.
- Kinaxis Inc (TSX:KXS) owns RapidResponse, the world’s best software for global supply chain management, KXS leases this software to businesses in exchange for an annual fee. A business’ supply-chain is the network of suppliers it uses to produce and distribute a specific product to a final buyer. These networks have been disrupted by global trade wars, tariffs, and most recently the coronavirus. As manufacturing plants and ports shutdown as a result of the coronavirus, businesses need to quickly shift their supply-chain to ensure the supply of their product. This requires technology, and specifically, the world’s fastest technology in identifying opportunities/problems in the supply-chain: RapidResponse. We expect demand for KXS’ software to increase as a result of this pandemic, a thesis that was supported by KXS first quarter results and outlook.
- Despite this, shares of KXS fell during March which created the opportunity for us to add to our position. Shares have since doubled off the March lows as market participants have realized KXS is likely worth more as a result of the pandemic.
“This means that” KXS is an example of a company we believe was worth much more than it was trading at during the panic in March and April. While volatility is unpleasant from an emotional perspective, it can create outstanding individual investment opportunities.
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.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Real Fund are presented based on the masters series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American 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 North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Real Fund (April, 2013), and Pathfinder International 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.