Investor Insights

When we started the Montgomery Small Companies Fund 12 months ago, data centre operator NEXTDC (ASX:NXT) was one of the first businesses we bought.  On our analysis, the shares were cheap.   One year on and the share price has almost doubled.

The digital transformation of the enterprise is a long-term trend which is now accelerating as a direct consequence of the COVID-19 pandemic. Privileged business models operating with the benefit of this structural tailwind, therefore, should be considered carefully for an investment opportunity.

The share price of Reece (ASX:REH) – Australia’s biggest supplier of plumbing and bathroom products – has outperformed the broader market for many years. Encouragingly, the company recently reported healthy trading during the COVID-19 period. With renovation activity forecast to rise over the next 12 months, I think this is definitely a business that investors should be watching.

In December 2019, my colleague Gary Rollo, wrote “Is PointsBet Holdings worth a bet? ” and the answer to this question was well and truly put to bed last Friday.

With more than six months of COVID-19 disruptions behind us, there have been some clear winners emerging as a result of changes in spending patterns and the shift to online. One such business has been Redbubble – a growing online marketplace providing print-on-demand products based on user-submitted artwork.

While small company shares demonstrate greater volatility than big company shares, over longer time frames they tend to deliver higher returns. Over the short-term they can involve more risk because of their lower liquidity, their sensitivity to management’s decision-making and their sensitivity to general economic conditions.

The conventional wisdom today is that Facebook is a mature behemoth that is under intensifying risk of being penalised in a multitude of possible ways by regulators. It is certainly a behemoth. The scale of Facebook really is quite difficult to imagine.

What do A. P. Eagers Automotive (ASX:APE) and Super Retail Group (ASX:SUL) have in common? Well, for starters, these firms have seen their revenues turbo charged by our changed spending habits since the start of Australia’s COVID-19 travel restrictions.

The majority of companies on the ASX100 and ASX200 have now reported. Many have beaten estimates. And, reassuringly, guidance is less negative than most market watchers had expected. This brings hope that FY21 may not be so bad for equity investors after all. One pattern has emerged from this reporting season and we may have run theory to thank.

Reliance Worldwide (ASX:RWC), a global provider of water control systems and plumbing solutions, is a business we’re very happy to own. True to its name, the company’s latest earnings announcement was extremely positive, which led to a strong bounce in the share price.

COVID-19 has proved challenging for many investors, but the pandemic is also accelerating a long-term structural trend that presents significant investment opportunities – the digital transformation of enterprises. Flashback a few months and it’s easy to see how this unfolded. Almost overnight, entire workforces began working remotely and demand for digital collaboration tools skyrocketed.

As with everything else, there are two camps when it comes to investment conditions today. There are two camps regarding whether the market is expensive (it probably is), whether economic conditions are deteriorating or improving, whether governments and central banks can continue Keynesian intervention indefinitely, and there’s two schools of thought as to whether there’ll be a vaccine.