What stock will Sohn’s top picker choose next?

Nick Griffin is on track to take out the coveted best stock pick at the Sohn Heart & Minds conference.

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It has been a year when most picks were hi-tech stocks that took a hiding. “Tech is yesterday’s story for now – although not necessarily forever,” says Griffin, chief investment officer of growth fund manager Munro Partners.

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Last year he pitched Onsemi, previously called ON Semiconductor. “We are one of the few who are up for the year, in fact the only one at this point in time. We are on track for a 15-25 per cent ­return,” he says.

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Griffin notes that semiconductors have also fallen this year, being horribly cyclical, but Onsemi has gone up. “Even though it is a semiconductor, it’s not really a technology idea, it’s very much an industrial play on decarbonisation,” he says. “We think that is the next big mega trend.”

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Onsemi sells power semiconductors that are critical to converting battery power into electricity. Griffin says the shift in electric-vehicle penetration caused an inflection in demand for power semis. This year, Onsemi has had a series of earnings upgrades, all confirming his investment philosophy.

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“We are stock pickers. Most fund managers will try and do the macro, be over or underweight certain sectors, or certain bonds or countries. We think that is a total waste of time,” Griffin says. “The reality is equity markets are made up of very few great companies that grow structurally over a long period of time.

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“If you can find a good S curve of adoption, be it smartphones, e-commerce, or digital payments, then that S curve will outrun whatever the economy does in the background. That’s what gives us these double-digit returns for six years at Munro and 10 years prior to that. Over the years that’s been Amazon in e-commerce, Salesforce or ServiceNow in enterprise software, ASML in semiconductors and now we think decarbonisation is the next big structural trend.”

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On November 18, Griffin – with $4.7bn under management at Munro Partners – heads to Hobart for this year’s face-to-face pitch to investors on his 2023 pick.

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The conference – with a twist – was set up by financiers Matthew Grounds, Guy Fowler and Gary Weiss in 2016. They also built an ASX-listed fund that takes stock picks pitched at the conference. All management fees are donated to medical research.

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Munro has three separate ­equity growth funds. Each fund is also quoted as managed ETFs on the stock exchange, allowing retail investors access to potential S-curve opportunities outside Australia, from Netflix to decarbonisation. The Global Growth Fund is an absolute return fund, similar to a Platinum or Antipodes, although these are value funds. Munro is about growth in revenue and earnings – as Griffin describes them, the glass-half-full guys in global equities.

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A second fund is global growth equities, but only for long positions and without downside protection tools.

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The third is the Climate Change Leaders Fund launched in October last year. Griffin says the fund is not an ESG product, but a thematic fund that can be scaled up. “It’s no different to back in 2005, when everyone was launching tech funds or international brand funds,” he says.

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Some $50 trillion is to be spent decarbonising the planet on renewable energy, EVs, and energy efficiency. But energy transition is where Griffith sees some of the best plays.

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“Think about the European gas situation. LNG is a clear transition fuel required to fill the gap and most of what will fill the gap in India and China as they come off coal. Gas is classic transition fuel that is being treated like a fossil fuel but it is not,” he says.

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Munro is backing Texas-based Cheniere Energy. It is not a traditional gas extractor and producer like Woodside. Instead, it builds terminals on the Gulf of Mexico coast, buys the gas off the grid, turns it into LNG and sells it.

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“It has gone from nothing 10 years ago to being the world’s second-largest LNG producer today behind Qatar and we’d expect it to be largest at some point. Cheniere is a transition company,” Griffin says.

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Rising rates and fears of recession has inevitably checked Munro’s high-growth strategy. “It’s harder and harder to find those situations when you go into a macro slowdown,” Griffin says. Munro’s funds are down about 15 per cent on a one-year rolling basis, which he sees as fair in terms of the market, but quite good compared to Munro’s growth peers, most of which he says are down 40 or 50 per cent.

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All year, the firm has been more defensive with higher cash levels and some short selling on the global growth product.

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Last year, Munro off-loaded Spotify, Hello Fresh, Square, The Trade Desk, Atlassian and Uber, favouring big cap companies such as Microsoft and Visa for growth through the cycle or healthcare companies like Thermo Fisher and Danaher.

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This article was originally posted by The Australian here.

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