The 2030 Fund 3Q21 Update

Summary

• The 2030 Fund had an excellent YTD performance of 12.01%, beating S&P 500 in 1H21 but trailed the index as of 1 October 2021.
• ADBE, DXCM, MSFT amongst top 3 gainers in Q3, while BABA, DG, TDOC were among the top 3 detractors.
• The 2030 Fund should be on track meet the annualised return target of 14.9%.
• A few changes could be made to the Fund in Q4 2021 to improve the quality of the overall portfolio.

baona/iStock via Getty Images

The 2030 Fund is a portfolio created at the start of 2021 with an aim to quadruple $10,000 to $40,000 by the year 2030 (GBP £8,000 to £32,000).

Nine months since its inception, The 2030 Fund achieved a total return of 12.01% YTD, on track to achieve the absolute return target of 14.9% by 31 December 2021 laid out here (other updates on the fund here). I aim to analyse the reasons for the investment decisions I've made in the past few months and the lessons I learned from managing the Fund.

Jan to Sep 2021 Performance Update

Table: Total returns YTD from 13 holdings

On a YTD basis, the top 3 contributors are Facebook (FB), Macerich (MAC) and Simon Property Group (SPG). Meanwhile, the top 3 detractors are Teladoc (TDOC), Alibaba (BABA) and British American Tobacco (BTI).

Graph: The 2030 Fund performance YTD

In July 2021, Facebook's stock price broke the ATH resistance, briefly touching $384 before cooling down to $340 in October. FB is currently trading below its 50-day Moving Average and with Q3 report due by the end of this month, the stock now trades at a FWD PE of 24x and I believe long term investors should keep an eye for near-term buying opportunities.

Graph: FB price vs 50-day MA vs 200-day MA

Real assets are having a great performance in 2021 so far. The shopping mall REITs were the biggest losers in 2020, however my view is that the best of breeds will continue to thrive in 2021 and beyond. With consolidation in the retail sector, the best of Class A shopping malls such as MAC and SPG are well positioned to benefit from increased retail traffic, increased rent collection and improved dividend payouts.

Potential changes to the portfolio

With a long term view of achieving stable mid-teens growth, I am looking to re-balance the portfolio in Q4 with increased allocation towards relatively undervalued, high cash-flow-generating businesses.

Disposals

Positions in DexCom and Teladoc Health will be reduced in favour of other companies trading below their historical ratios. This portfolio adjustment is not the result of a lack of belief in DXCM and TDOC, rather it is the opportunity cost of missing out on relatively better investments. An increased cash reserve in the short term will enable me to initiate a larger position on blue-chip stocks in correction territory (such as FB).

Potential additions

The global economy is gradually reopening and the stock market reacted by punishing eCommerce platforms such as AMZN and BABA, with both experiencing a 10%-20% correction last month. I believe the allocation towards AMZN and BABA in The 2030 Fund could be increased to capitalise on their undervaluation.

If I had to pick one stock from the two above, I believe Amazon would be the safer bet. Online shopping habits, increased digital advertising and digital transformation have accelerated. Also, with further investments in Alexa, Prime and other ventures, Amazon is well positioned to benefit from these trends and it is only a matter of time before the Amazon stock price reflects the growth potential that remains in this company.

Alibaba proves to be an interesting investment case for those who are willing to bear the risks from catching a falling knife. The developments in China such as "Common Prosperity" and other future policies to Alibaba are unknown to retail investors. Despite having more than 100 informative Seeking Alpha articles in the past 3 months, there remains a high degree of political uncertainty for Chinese businesses today and in the coming years.

The additional risk exposure in China versus other global stocks (i.e. growth forecasts and risk-adjusted WACC) is not quantifiable at the moment, so investors should remain cautious before going all-in on Chinese stocks.

Concluding thoughts

In terms of market outlook, I believe unexpected inflation and international lockdowns will remain the key investment themes for the rest of 2021. The 2030 Fund aims to invest in high-quality companies with strong pricing power and robust supply chains and should not be materially impacted by these macroeconomic conditions.

The 2030 Fund generated 12.0% YTD, or 16.3% on an annualised basis. The Fund is on track to quadruple by 2030, which would require a 14.9% CAGR. Each investment is regularly monitored to ensure the portfolio consists of high-quality companies capable of delivering top and bottom line growth.

I hope to provide another update on the Fund by the end of the year with portfolio developments, and hopefully a successful end to the first year.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ADBE, BABA, MO, AMZN, BTI, DXCM, DG, FB, MAC, MSFT, PYPL, SPG, TDOC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[BillHiIIy]

Is the stock market punishing $BABA because "the global economy is gradually reopening"? Hmmm...

[Value Surgeon]

@BillHiIIy To a small extent yes, although I should've placed greater emphasis on $AMZN in that sentence!

[BillHiIIy]

@Value Surgeon Small extent... Tiny extent... Really not the issue in $BABS's case if you ask me (or almost anyone else).