Please refer to our disclaimers, which can be found in the footnote of this page and here.
Contents
Performance
4Q 2024 performance was +7.7% net (vs. the MSCI ACWI at -1.0%). For the full year, performance was +19.5% gross / +16.8% net (vs. the MSCI ACWI at +17.5%). Since inception (1 Jan 2019), the portfolio has compounded at +18.9% gross / +16.1% net (vs. the MSCI ACWI at +12.6%), representing +6.2% gross (+3.4% net) annualised outperformance. All returns are in USD.
The top contributors to 2024 performance were Alphabet and Salesforce, followed by Meta Platforms and Visa. The top detractor was Pinduoduo. We started the quarter with 6% cash and ended with 14%.
Returns Summary and Portfolio Statistics
(all returns are annualised in USD)
Portfolio Discussion
We presented our work on Alphabet’s antitrust issues mid-quarter, so we won't present a deep dive in this letter. Instead, here are some comments on 2024.
Our expected investment cadence is 1 new name per year and 3-4 adjustment trades per quarter. Things were on track here in 2024. We added Pinduoduo and sold Twilio. We outlined our Pinduoduo thesis in the Q2 Letter so won’t repeat it here. Twilio formed part of the portfolio we call the “high-quality businesses of tomorrow”. These are businesses where the moats are still forming with scale. They are faster growing and have higher return potential, but the range of outcomes is also wide. As such, they are sized smaller than our core positions. In Twilio’s case, we were wrong on the progression of business quality. The core communications business commoditised faster than expected, while the newer and potentially higher quality areas of the business did not come to fruition as expected. In addition, the acquisition and integration of Segment (a customer data platform) suffered from poor execution and increased competition. The stock rallied materially of late as the market became optimistic about Twilio as an AI winner. We used this strength to exit as any AI potential does not address our concerns on business quality. The overall return was a 0.8x money multiple. This would have been lower, but we offset the losses with some changes in position size (up and down) in response to some big valuation moves over the years. Since the inception of the business (i.e. our first client) the money multiple was 1.6x for an IRR of +61%.
Other key portfolio changes in 2024 include:
- Adding to Charter Communications in Q1 and selling half the position in Q3
- Adding to Salesforce in Q2 and selling ~1/3 of the position in Q4
- Adding to Alphabet in Q1, trimming in Q2, and adding in Q4
- Trimming Meta Platforms in Q1
- Trimming Okta in Q1
- Adding to Visa in Q2
As you can see above, we don’t (and should not) make many decisions throughout the year. The focus is on the long-term rather than trading. Most of our time is spent researching new and existing positions. Some research projects in 2024 included pest control, insurance software, construction software, China and cross-border eCommerce, antitrust cases, fixed wireless and rural internet, stock brokers, US pod coffee, vertical software roll-ups, re-underwriting Visa / Mastercard, AI capex, and pharma-biotech software. Given our current portfolio, we often get questions about whether we are an internet/software focused firm. Our research areas show otherwise. We search for quality across industries.
Reflecting on 2024, we are happy with most decisions. Alphabet, Salesforce, and Pinduoduo are key examples. Alphabet was out-of-favour for most of the year and we used the weakness in Q1 to increase our position size (in the $130s). In line with our thesis, the business proved itself to be a leader in AI despite concerns OpenAI / Microsoft were leaving them behind. We reduced our Salesforce position earlier in the year (price above $300). The price declined significantly following the Q1 earnings report and we were able to add materially (at ~$229 and ~$217). We then reduced the position again in Q4 (at ~$331) as the position size had grown too large (~22%). Our view of Salesforce’s long-term value remained almost unchanged throughout. In Pinduoduo’s case, we completed our work but then remained patient and were able to build a full position following the significant share price decline in Q3. In all three cases, we ignored the shorter-term noise and, combined with the conviction built, took advantage of the price volatility. Importantly, we do not trade frequently in and out of our positions; such moves are only warranted given very significant valuation changes.
What would we have done differently? Reducing our Meta Platforms position early in the year was likely a mistake. The addressable market and growth runway for the business has increased significantly with AI. We were also too cautious with some potential new investments, missing good returns as the market started to value our theses. We care more about errors of commission than omission; in a concentrated portfolio, missed opportunities are inevitable. However, these omissions involved significant underwriting efforts. In other cases, we deemed newer underwrites too pricey to buy, and despite their prices also rising with the broader market, our decision not to acquire was prudent.
Business Update
There are no updates this quarter.