Released yesterday, the Magellan Global Fund half-yearly investor report notes that in 2014 the fund will continue its exposure to US housing, US interest rates, technology, e-commerce, emerging market consumption growth and a move to a cashless society.
The move to a cashless society, driven by the explosion of smartphones, will accelerate the growth of electronic and mobile payments, Magellan Global Fund lead portfolio manager Hamish Douglass said, adding that a limited number of companies are well positioned to benefit from the shift.
“These companies are typically highly attractive, with very strong network effects, low capital intensity, high barriers to entry and high returns on capital,” he said.
As at 31 December 2013, 14.6 per cent of the fund was invested in PayPal, American Express, Visa and MasterCard.
In addition, 12.2 per cent of the fund is made up of software companies Microsoft and Oracle, while eBay and Google represented approximately 7.6 per cent.
After a strong year for tech stocks in 2013, whispers of a tech bubble have been heard in financial markets.
However, online trading platform CMC Markets played down fears of a bubble with the release of a special report this week.
Aside from technology, Magellan Global Fund will also continue to hold investments in multinational consumer franchises that are exposed to emerging market consumption growth.
“Approximately 19.2 per cent of the fund is invested in multinational consumer franchises, which generate around 40 per cent of their revenue from emerging markets,” Mr Douglass said.
As of 31 December 2013, the fund’s largest investments in this space are Yum! Brands, Nestle, Danone, McDonald’s and Unilever.
In the USA, as the economy recovers, short- and long-term interest rates will “normalise” over the next three years, Mr Douglass said, creating opportunities in the finance sector.
“We own four US financial institutions which are likely to benefit from the increase in US interest rates: Wells Fargo, US Bancorp, Bank of New York Mellon and State Street,” he said.
“These investments represented approximately 13.1 per cent of the fund at 31 December 2013.”
The fund returned 15.2 per cent net of fees over the six months to 31 December 2013.
While the fund underperformed the MSCI World Net Total Return Index AUD by 4.3 per cent, this is “of little relevance or concern”, Mr Douglass said.
“We aim to produce absolute returns of a minimum of 9 per cent per annum, after fees, through the business cycle, while minimising the risk of a permanent capital loss.”
Since its inception in July 2007 the fund has delivered an 11 per cent yearly return.
