Roger Walling - ICE Fund Quarterly Update

ICE Fund – Quarterly Update

22nd Apr 2024

March 2024 Quarter Update, Roger Walling*

The ICE Fund had an excellent quarter in March as the fund returned 11.5% net of fees. For the 12 months rolling to the end of March, the total return was 27% after fees.

The ICE Fund is benchmark unaware but for context, the S&P/ASX Small Industrials Accumulation Index returned 2.5%, and the S&P/ASX Small Ordinaries Accumulation Index returned 13.8% – both of those figures for the rolling 12 months.

It was really pleasing to see the performance of the stocks in the fund in reporting season, and so it’s really pleasing to report a very broad contribution of performance across stocks, and it’s exciting to discuss those names.

Temple and Webster was once again a strong contributor to the fund in the March quarter. They’re Australia’s leading online furniture and homewares specialist. They’re entrenched in that number one position, but they’ve made a strategic pivot to go very hard at brand advertising, to boost and entrench that market share position. Because they’re the number one player, and because they’re profitable, the sheer amount of advertising dollars they can spend on brand marketing dwarfs their competitors’ position, and so they should be able to achieve that brand position, increase that exposure to the broader public, and they really can become that category killer in online furniture and homewares.

Life360 was also a very successful contributor to the fund in the March quarter. It’s been a very strong contributor since we first identified the stock in 2020.

Life360 provides the leading family security and location sharing app globally. It has a number of unique features – driver alerts for young drivers when they’re first finding their way on the road;  emergency call-outs where there’s an accident or where a family member believes they’re in danger; credit card fraud protection. The company continues to expand the number of users – currently there are 60 million people Using the service globally, and they use it on a daily basis in many instances.

Life360 have made a business pivot themselves, they’re now electing to promote and sell advertising to those 60 million users, very similar to what other businesses such as Reddit, Spotify, and Uber have done. And if Life360 can mirror that success and generate good profits from that advertising business, we believe the future is still very bright for Life360.

ICE Fund portfolio positioning

The portfolio is invested in business franchises that ICE’s process sees as target stocks with assets that are difficult to replicate, well-managed businesses with stocky customers. We look to invest in those companies at the right price to deliver appropriate returns to our investors.

I’ll just give three examples of the larger positions in the fund.

We own GUD which is a leading automotive wholesaler and distributor of parts in Australia. They’re the number one player, and the demand for vehicle parts is really consistent, which enables GUD to deliver consistent profits.

Secondly, we are in a position in AUB Group. We like the insurance broker space – customers to insurance brokers, small and medium-sized businesses, are really sticking to their insurance brokers. They really rely on the advice that those brokers provide. In addition, the insurance brokers are exposed to rising costs, rising inflation, which is good for premiums and which is good for profit growth.

We touched on Webjet earlier, another one of the larger positions in the fund. And again, in that business-to-business space, Webjet has been gaining share linking small and medium-sized hotels and their inventory to the many travel agents and consumers who travel across the globe, and their platform is critical in delivering that service.

Has the Fund positioning changed?

We have made some changes to the positioning of the fund during the quarter, strictly following the ICE process and philosophy. We seek companies with assets that are difficult to replicate and where customers are sticky to that product or service.

We added Infomedia during the quarter. That was the largest change that we made. Infomedia provides software that’s critical to how automotive businesses run, in particular the servicing and parts component.

They have a global business, and they are entrenched with their customers. Their software provides a lot of vehicle-specific data and vehicle history which makes it very challenging for businesses to take Infomedia out of their service. It has a new management team and it’s being well-managed, and we believe that the new management team can add features and products to what is a very loyal customer base, to grow revenue and profits for our investors.

We increased our position in several existing franchises in the fund. We added to our position in Redox, Australia’s leading chemical importer and distribution business, a family-led business that’s gained share over many years. We added to our position in Webjet as it continues to gain share in the hotel beds business. And finally, we added to our position in EQT Holdings. EQT is an infrastructure business within Australian financial services. They provide corporate and superannuation trustee services and they’ve been doing so for more than 130 years.

We exited the small position we had in Nanosonics. The company provides infection prevention services. They have some products in development and they have one key set of products which are sold on the market. In January, their market update in respect to Trophon sales was quite disappointing. We believe that that brought into question the maturity of that franchise and on that basis, the franchise quality was lowered, and we exited the position. We took some profits in Temple and Webster. We also trimmed our position in GQG Partners, an international fund manager that’s been achieving very solid fund flows. We also reduced our position in Life360.



*The text has been edited for clarity.

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