Funds and subscriptions reunited

Last August, I re-joined Intelligent Investor to manage the funds business. We thought it was best run separately from the Intelligent Investor publishing business for the reasons explained in Nathan Bell checks in to Hotel California.

Despite the best of intentions, as the months have gone by, and having worked on both sides, I've concluded that this isn't the best way to help you manage and grow your portfolios. And I don't mind saying I miss working closely with the research team.

Members are also missing out on the unique stock ideas generated in the funds business, and the now substantial differences between the model portfolios and the corresponding growth and income funds are confusing.

With the benefit of hindsight, I believe fund investors and Intelligent Investor members will be better served by merging the two operations, combining our analytical resources and putting them to work in the interests of both.

What does this mean in practice?

Firstly, it means we made an embarrassing mistake. Please accept this as our formal apology. Second, I'll be stepping in to fill James Carlisle's shoes, although not his vegan ways, while I supervise the funds business.

Third, we'll bring the model portfolios and our actively managed funds into line so that one matches the other. This will take time as we don't want to create unnecessary trading costs and taxation consequences for members and investors in the funds. While the major positions are similar, it's the smaller positions that are currently quite different and we don't want to disrupt your coverage or portfolios unnecessarily.

Fourth, we'll start publishing the holdings in our Ethical Portfolio in case you like to invest with an ethical bent. Our small-cap fund managed by Alex Hughes will remain independent, however, given the fund's liquidity constraints.

Finally, to be fair to both Intelligent Investor members and fund investors, stocks can be bought for the funds at the same time the model portfolios are changed on the Intelligent Investor website. We don't believe this will be a material detriment to members or the portfolios, as we don't recommend too many illiquid stocks.

Looking ahead

While the faces of my colleagues are the same, the market is very different to four years ago when I left Intelligent Investor. Back then, my final three buy recommendations were Cleanaway, Nanosonics and Hotel Property Investments.

Today, Cleanaway's share price is four times higher and is a market darling. Investors have also fallen in love with ultrasound probe disinfectant company Nanosonics, which, according to company forecasts, will trade on 63 times earnings in 2023. Little wonder Graham Witcomb recommended banking profits in February. Clearly, software isn't the only thing moving to the cloud.

As for Hotel Properties, a defensive income pick, pygmy interest rates have seen it rise 23% per annum, until Mickey Mordech wisely recommended selling last week.

Shades of 2006

This isn't to blow my own trumpet. Instead, I want to highlight the nature of the current environment, a subject John Addis will address tomorrow. It all seems a little 2006.

Back then we were struggling to find Buy ideas. But instead of being patient and defensive, we ended up recommending risky managed investment schemes like Timbercorp and Great Southern. We didn't have recommended portfolio weightings back then, either. 

All of which is to say this is a time for patience and modest expectations, a time to focus on quality and eliminate any high risks in your portfolio. Interest rates have done all they can, and the profit downgrades are coming thick and fast.

In the coming months you're going to receive a number of new recommendations. All come with a warning; don't fill your portfolio with low-quality businesses and please respect our recommended portfolio limits.

If you're not experienced selecting individual stocks, or your stock selections are performing worse than the model portfolios over time, there's no shame in following the model portfolios exactly or investing in our funds. Their performance, assuming they beat the index over time, should be your benchmark. That's particularly important in the current environment when cheap blue-chip stocks are hard to find.

Focus

In the coming months we'll be applying our analytical firepower judiciously, where we have an edge over the market. That means less coverage of the likes of AGL Energy and more focus on ripping stocks like Jumbo Interactive, which slipped through the net. Making mistakes is an occupational hazard, but I really hate missing huge opportunities.

That's why you'll see more coverage of the many stocks whose futures look much brighter as they harness the digital economy. While their prices might be out of reach right now, it won't always be that way and we want to you to be prepared.

Our immediate focus is to publish several buy ideas and introduce a series of new stocks to the coverage list. Over the next few months we'll also be doing some deep dives on newer industries to see if there are any opportunities or threats to existing recommendations.

Fortnightly podcasts will allow us to explore the issues raised in the comments section of articles, and we'll look to record more videos when important news strikes.

We're also discussing ways to save time covering stocks when recommendations don't change and ways to cover familiar stocks like the big banks in more interesting ways. 

I'm also planning on publishing a few Ideas Lab stories on internationally-listed stocks for those prepared to do their own homework (we won't be providing ongoing coverage), and we'll be incorporating more international comparisons in our analysis.

The world is getting smaller and, increasingly, Australia's best businesses face their biggest opportunities and competition abroad. It's vital you understand what the competition is up to.

It's great to be back working with my old colleagues and friends. Rakesh has come a long way since I first hired him in 2007, and Graham is now a senior member of the team. Mickey already has an enviable penchant for quality stocks and the old heads are hopefully greying with wisdom. Gaurav, meanwhile, will be taking on more responsibility for the team's performance.

Despite the Government encouraging our monetary masters to double-down on our franken-economy designed to increase property prices at all costs (despite similar strategies bringing the international financial system to a halt just a decade ago), there are going to be huge opportunities for those that can keep a level head when things get tougher. 

Personally, I can't wait.