• Angus Crennan

Third Quarter 2017 Results – Balmoral Fund

At the end of September 2017 our fund’s unit price was $1.04015 after fees. This translates into 5.93% annualised return since our Fund’s inception on Australia Day 2017.


The fund used a number of protective derivatives this quarter. Because these instruments carry a cost they were only used for around 24 hours around the time of the North Korean nuclear testing. The cost to the fund was therefore negligible. No leverage has been used and is not anticipated to be used in the near term.

The fund has now taken shape and we are collectively part-owners of 19 companies. The core of our fund is ownership of businesses with little to no debt, delivering consistent growth in their cash production and returns to our equity capital.

New ownership positions

Between 30 June and 30 September we purchased part ownership of 7 new businesses.

  1. Dunelm is the UK’s leading home furnishings company which has been around since 1979. Their out-of-town superstores look like a Bunnings-size Bed Bath and Table – more importantly this outstanding modern retail business is a cash generating machine. This is our largest holding representing 12.4% of our fund as at end September.

  2. Tractor Supply Company is a rapidly growing American retailer of homeware, garden and farm products which has been around since 1938. In addition to 1600 Tractor Supply branded stores across 49 US states this company is also growing its Petsense brand with 160 US stores. The company is on track to open another 100 stores in 2017. This is our second largest holding representing 9.8% of our fund as at end September.

  3. CH. Robinson Worldwide is a US global transportation and logistics provider which has been around since 1905. The business supports around 113,000 customers with truck services, ocean and air shipping as well as a range of logistic expertise.

  4. Van De Velde is a Belgian luxury lingerie company which has been around since 1919. Key brands are Marie Jo, Prima Donna and Andres Sarda.

  5. Herman Miller is a US office and home furnishings company which has been around since 1923. The company is famous for its chairs – Eames Lounge Chairs are probably the company’s best known product.

  6. Knoll is a US home and office furniture company which has been around since 1938. Like Herman Miller above this company is famous for its chairs – the Tulip Chair is among their more famous products.

  7. G-Ahead Group is a UK based passenger transport company founded in 1987. With 29,000 employees and 30 years’ experience running complex transport networks this group is well positioned to retain key contracts such as London Buses, various regional UK bus services and UK Rail.

Our existing twelve positions from end June remain unchanged (we purchased more shares of some of these companies during the quarter):

  1. German super premium porcelain company Villeroy & Bosh.

  2. US beauty group Coty

  3. Swedish window and door manufacturer Inwido

  4. German corporate and recently smart casual clothier Hugo Boss

  5. Italian high fashion house Prada

  6. German bank Deutsche Bank

  7. French pharmaceutical and laboratory equipment supplier Sartorius Stedim Biotech SA

  8. US toy company Mattel Inc

  9. US human glucose monitoring company DexCom

  10. UK bathroom products company Norcros

  11. US supermarket Kroger

  12. Netherlands chemical company LyondellBasell Industries

Key detractors this quarter

The detractors over the quarter were weakening share prices at Dexcom, Mattel and Coty:

  • DexCom competitor Abbott Labs released a similar product near the end of the quarter. DexCom’s share price fell over 30% that day before recovering around 8% the following day. This was a curious market reaction given the competitor product was known to be coming this year. DexCom is deep in its successful roll out of its product whereas the competitor has only just received approvals to begin its sales process. Given the outstanding success with DexCom, and its continued status as the only continuous glucose monitoring solution, it’s easy to imagine both end users and medical practitioners remaining comfortable using DexCom. It’s worth noting in 2015 Google Life Sciences acquired US$35m of stock in this company at over US$90 per share. I believe the market has hugely over reacted, under-estimates DexCom’s competitive response in 2018 to this new competitor, and I am comfortable holding our position.

  • Mattel needs to go back to doing their basics well – for example Barbie doll quality declined under the old management. Parents will always want Barbies and Hot Wheels to balance screen time for their children meaning getting the proposition right will see our position in this iconic company become far more valuable in the years ahead.

  • Beauty products owner Coty overpaid for the brands it purchased, and implemented the acquisitions slowly, and as a result has lost a lot of faith from investors. From market highs fotr the company at over US$30 per share we acquired our shares under US$20 although the share price has since declined further. I am comfortable looking through this weakness in their share price as they have iconic businesses with long term potential to generate a lot of cash for us.

Key contributors this quarter

Several of our positions have been quickly recognised by the market and their share price has accelerated sharply from our time of acquisition.

  • Hugo Boss has shot ahead and at market close on 30 September was trading 27.7% higher than our entry price. Including currency our unrealised gain is even higher at 37.4%.

  • LyondellBasell Industries is up 23.1% in US$ price however in Australian Dollar terms we are up 19.4% given the US Dollar weakened from our time of acquisition.

  • Villeroy & Boch remains a strong position for us. It has traded up 18.8% in Euro terms and 24.9% in Australian Dollar terms from our entry price.

Portfolio construction

As at end September our portfolio looks as follows:

  • 15% cash (8% Australian, 5% Euro and the residual US)

  • 38% US companies

  • 26% European companies

  • 21% UK companies

I look forward to an exciting final quarter of 2017 and a strong 2018.



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