[GRTV] Fisher Funds' Sam Dickie's 2020 outlook

Susan Edmunds speaks to Sam Dickie senior portfolio manager from Fisher Funds about their recent Good Returns Fund Manager of the Year recognition; and gets the low-down on Fisher Funds' investment philosophy and approach for 2020.

Tuesday, February 18th 2020, 4:50PM

Welcome to Good Returns TV. I'm Susan Edmunds filling in for Philip Macalister. Today, I have with me Sam Dickie, a senior portfolio manager at Fisher Funds. Thanks for being here.

Good afternoon.

Congratulations on your Fund Manager of the Year Award with the recent Good Returns Awards.

Thank you, and thank you very much Good Returns.

Was it a surprise?

It's always a surprise to get recognised, but we appreciate it, and it's a testament to the team and how well it's been built out over the last few years.

Obviously, the markets have been on your side for a while, I guess. Do you think that will continue?

That's a very good question. Whenever someone asks me: "Is a correction imminent?" I always say, "I'm absolutely certain there will be a correction. I've just got no idea when or how deep it will be". I think if we take a step back to the start of 2019, no one expected the New Zealand stock market to be up 30%, and we certainly didn't expect that our fund would be up 42%, so as we roll into this year, there are risks on the horizon as there are every year, but we take them one by one, and it doesn't look anything insurmountable right now.

Okay. Where do you think the opportunities might be this year?

I think we'll be sticking to our tried and true playbook. We are a super active fund manager. To give you a quick idea, there's 109,000 companies listed globally, and we handpick 90 of those. In a New Zealand context, the New Zealand fund that I run, we only have 15 companies in our high conviction portfolio, and that compares to some of our more passive competitors who might have 30, 50 or 90 stocks, so we're sticking with the same stable from last year.

So you're still definitely committed to active management as the way to get the best returns.

100% committed, yes.

I mean, if we think about our flagship fund and one of our oldest funds, New Zealand Growth Fund, which Carmel set up 21 years ago, if you'd invested $100,000 in that 21 years ago, that'd be worth over a million dollars today. Now, if you'd gone with a passive fund manager and just invested in the market, that'd be worth $600,000, which is not to be sneezed at, but that extra $400,000 of active return is what we think our clients really value.

Yeah. I can see that. Do you think that coronavirus is much of a concern at the moment?

The only thing I can tell you for certain about the coronavirus is no one I've spoken to knows for certain the outcome of this thing. History does give us some guide. We look back at SARS, SARS only infected 8,500 people, and so far the coronavirus, as of a couple of hours ago, had infected about 41,000 people, so it is more infectious. The SARS mortality rate was around 10%, and so far, if we look at the data we're using, which is the World Health Organization data, the mortality rate of the coronavirus is only 2%, so that's a good news thing, and it doesn't seem to be spreading significantly outside China, and the Hubei province where it originated from.

Will it change your thinking at all this year do you think?

I think coronavirus is one of many risks that get thrown at us pretty regularly. We're watching it super closely. In fact, in the last 24 hours, I've spoken to about 15 of the companies I have invested in both in New Zealand and globally to see what they're seeing. We do take a long-term view, we always have taken a very long-term view, so unless this looks like it's going to be a full-blown pandemic, I don't think that'll impact the long-term view we have in a lot of these companies.

All right. Your performance at Fisher Funds has been really strong lately. Has anything changed there? What's happened?

I mean, there's three things that have not really changed at all. We're still a specialist fund manager, so all we do is manage clients' money, and that compares to some of the other competitors in the market who might be banks or insurance companies so that they wear many hats. We only wear the one hat. That's what we are focused on. The second thing is we're still a really active fund manager, like I said. We pride ourselves on that globally handpicked 90 companies.

The third thing that hasn't changed is we are super focused on beating the market. That's what we come to work for every day. Maybe what has changed, or what we've got more of an emphasis on now is building out the team. We've now got 21 investment professionals in the team, and we think that's the biggest investment team in New Zealand. What's key there, we've got about 330 years of experience, maybe slightly skewed towards a couple of the more senior members of the team, but the point there is a lot of the analysts and portfolio managers have got significant offshore experience, and that's really critical for two reasons. One is to compare and contrast stocks across geographies, and the second one is to deal with the perceived or real, almost weekly crises that are thrown at us these days.

Does it make much of a difference not having Carmel Fisher right there with you?

Carmel's still on the board of the listed investment company, so Kingfish, Barramundi and Marlin, and she's still just a phone call away. She's been great since I've arrived two and a half, three years ago. I think in Fisher Funds 2.0 post-Carmel, a lot of Carmel's influences are still there, but we're really focused on two or three things.

One is building out the team. The other thing is culture, which everyone talks about, but I've worked at investment banks and hedge funds in London, Hong Kong, Australia and New Zealand, and I've never seen such a big focus on culture. The third thing is our deep-dive proprietary research, which we really pride ourselves on. If we take Xero, for example, that we didn't invest in two years ago or three years ago, we do what every normal financial analyst does, and we painstakingly build our Excel models and we spend a lot of time with senior management, but we take it one step further or two steps further, and we spend a lot of time with the next layer of management.

Recently, I was at Xerocon in San Diego in June of last year. And I spent a lot of time, over two days, with different layers of management. Then we also spent a lot of time with Xero's competitors and with Xero's customers, so it allows us to think more like a business owner than a typical financial analyst.

Is that a different approach than you might've had, say, five years ago, do you think?

Me, personally, I wasn't at Fisher Funds five years ago. I mean, it's been similar to the approach I've always had, and I've always been focused on looking at wide economic moats around a business, looking at management, the quality of management, looking for, as Charlie Munger would say, "Intelligent fanatics". That's what we really like, people who are feverish and passionate about their businesses, always looking for long runways of growth and always looking for pricing power, but I just think maybe there's more of a focus on that now at Fisher Funds.

That makes sense. You're not worried about valuations being too stretched?

I think we're always worried about valuations. It's one element of our investment process, our steep process that Carmel set up 21 years ago. Headline multiples are stretched. We all know that. I'm sure a lot of your listeners will think that as well. I guess the only point I'd make there is you've got to look at equity valuations in the context of the prevailing level of interest rates, and when you compare bond yield earnings, yield gaps, or whatever you want to do to compare equity valuations to interest rates, valuations are not super elevated.

Would there be any companies in particular that you're keeping an eye on this year?

Yeah, I mean, our favourite companies are our largest companies in the portfolio, so a2, Fisher & Paykel Healthcare, Xero, Infratil, Ryman, Summerset and Mainfreight. Mainfreight actually brings me back to the culture point I mentioned before. When we think about culture, we like to think of ourselves as having a high performance culture, but a real humble and learning-based culture. Why that's important is the best fund managers in the world are wrong a surprising amount of the time, and that becomes quite jarring for new recruits and other people we talk to because a lot of the people we get have got investment banking backgrounds or are very good students or actuaries, for example. As you know, Susan, those sorts of people are never wrong, so it's quite jarring to realise that it's fine to say, "I don't know". What that does is builds a real trusting and transparent culture. When you're dealing with something as uncertain as the equity markets, that's really, really critical.

The final company I mentioned was Mainfreight. When I joined two and a half years ago, it was pretty obvious to me what the economic moat was around, Auckland Airport, for example. They're not going to build another Auckland Airport anytime soon despite what Air New Zealand tells you. But when I looked at Mainfreight, it wasn't obvious to me what the moat was straightaway, but as I spent more and more time with Don and Tim and other layers of management within the business, it became clear to me that the real moat around Mainfreight's business was its culture. What I mean by that is on the notice board of every lunch room globally, they have the weekly P&L, so it engenders that sort of healthy competition.

They pay out 10% of their profits to all of their team members so that the team members feel like they're really enfranchised. What that does is it makes these guys go the extra mile for Mainfreight. It makes them have better customer service so they can charge premium prices. If you have a large position in a company like that, and you really admire a company like that, it makes sense that some of that culture emphasis rubs off on you.

Thank you. That's very interesting, and thank you for being here today.

Thank you very much, Susan. Thanks for having me.

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