Last month, we hosted an evening shareholder meeting in Melbourne where the portfolio managers of Mirrabooka and our other Listed Investment Companies shared insights on our investment strategies, approach to identifying companies, and thoughts on AI.
We’ve summarised the key questions and points raised by Mirrabooka portfolio manager Keiran Kennedy in the following article.
The performance of Mirrabooka has been strong recently and over a long period of time as this graph shows. What's gone right?
When we invest, we are not chasing short-term gains. Instead, we are looking for the best places to put cash for the next five years or more. We measure success by consistently delivering strong returns for our shareholders over the long term. Mirrabooka has a 25-year track record of success, having consistently outperformed over five and ten-year periods, dating all the way back to our founding in 1999.
Our most recent performance has been driven by key factors including several companies we’ve invested in having a strong recovery, companies like ARB, Reece, Net Wealth, James Hardie.
We've also had two particularly good winners in the portfolio recently. The first being Gentrack, a billing software business for energy retailers that we bought around two years ago, and its value has increased significantly since then. With so much change in the energy sector, billing systems need to be overhauled quite rapidly, and Gentrack is in a great position to offer software to solve that problem for customers. Another company of note that we bought at IPO around two years ago is IPD group. IPD group is a distributor of electrical equipment into the Australian market. Since we bought them, and in context of the energy transition, they've had five profit upgrades.
Mirrabooka has performed well over the last 12 months, but we’ve also delivered a consistent track record over ten, 15, 20 and 25 years, which is just as important for us and for our shareholders.
How do you think about approaching companies? Or looking at companies when you've got that great dispersion over sectors?
It's really stepping back and saying, “Are there excellent people running the business making sound decisions and putting all their passion and energy into growing those businesses every day?” And if that's a yes, that's the first gate you want to get through.
We ask questions about future leadership, if the company is placed to beat its competition, and what has it got that's hard to replicate? If we can identify these positive factors, we buy them when the value is there as well. Our job is to allocate capital to fantastic businesses to get better returns based on their growth, and not try and second guess the market.
What’s an advantage of Mirrabooka for investors?
Our focus on quality small and mid-cap companies with exceptional long-term growth potential is a key advantage. This allows us to hold onto winning small-cap investments as they grow into larger companies. Many mid-cap companies can sustain high growth rates for extended periods, translating to significant long-term returns for shareholders.
An example is our investment in ResMed. Our initial investment in ResMed was made at a low price point ($2.50 per share). Today, the share price is around $28, generating exceptional returns for investors. Selling this holding would trigger capital gains taxes and force us to reinvest in a company with potentially lower growth prospects. Holding onto ResMed, which aligns perfectly with our investment framework, has been a far better decision for our shareholders. ResMed's continued innovation and expansion into new markets demonstrates the long-term growth potential we aim to capture in our investments.
Can a company get too big for Mirrabooka if its shares run too hard?
Our focus is always on identifying long-term value. Two philosophies we’ve had in place for a very long time that have served us well are, that we are not to be small cap only, and we do not have a hard and fast rule of when we need to exit a company.
This approach means when we find a winner, we can own it for a lot longer. Some of the mid-cap companies we’ve invested in keep growing and delivering strong returns for long periods of time. So, if a company graduates into the top 50 ASX stocks, we will re-evaluate our conviction in the company's future performance and if it aligns with our investment criteria and demonstrates strong growth potential, we’re happy to continue holding it, even if it technically falls outside the typical small to mid-cap range. This flexible approach ensures we maximise returns and maintain a high-performing portfolio. Our constant review of the portfolio and commitment to holding quality companies enable us to adapt to changing market conditions while delivering consistent returns for our shareholders.
How do you manage the impact of rising interest rates and market volatility on your portfolio?
The performance of the market in the last 12 months has seen disparity in sector performance, with for example Information Technology up 38.6%, and Consumer Staples experiencing a decline of 8.8%.
We prioritise the underlying performance of businesses and view market fluctuations, such as high interest rates, as an opportunity to strategically add stocks to our portfolio. Unlike passively managed ETFs that react to daily market movements, we focus on identifying quality companies that can adapt to a volatile environment and improve profits. We also value the ability to directly engage with our shareholders, a benefit not commonly available with ETFs.