Positive Change Q4 investment update

As with any investment, your capital is at risk. Past performance is not a guide to future returns.

Rosie Rankin (RR): Hello, and welcome to the Positive Change quarterly update. I'm Rosie Rankin, and I'm delighted to be joined by Kate Fox, one of the investment managers and decision makers on the strategy. Now, over the next 10 minutes, we're going to delve into three topics. One, recent performance. Two, key transactions. And three, what is on the team's mind for 2025.

So, without further ado, let's dive into performance. Now, of course, we think in the long term, periods of five years or more. But for the purposes of this conversation, let's focus more on just the last three months. Tell us more.

Kate Fox (JF): Sure, Rosie. Well, over the fourth quarter, the strategy has performed broadly in line with the index. Now, this is an improving trend, but it is disappointing that we're not yet outperforming. So, I'll just run through some of the positive and negative contributors.

Starting on the positive side, we've had some fantastic results from companies such as Shopify, Remitly and Duolingo, who've been growing revenues by 21%, 39% and 40% respectively. Profitability has been improving, and importantly, we think the growth trajectory remains exciting for these businesses. Let's delve a little bit deeper into Remitly, where it grew the user base of its digital remittances app by 35% in the most recent quarter, which means there are now 7 million people who are using the app to send money back home to friends and family across 5,000 different corridors to help those friends and family members pay for basic and important needs such as food and utility bills.

In terms of the negative contributors, I would highlight MercadoLibre, Bank Rakyat and Moderna. Now, following strong share price performance, MercadoLibre shares have been weaker of late. And I think that probably reflects some market participants concern with the profitability impact of the company continuing to invest. It's investing in its ecommerce infrastructure and in growing its credit business. We actually think that these are really sensible, strategic decisions that will help the company capitalise on its long-term growth opportunity and help enhance its competitive position.

Moderna, on the other hand; this biotech business is finding it challenging as we move out of the pandemic stage and are now in an endemic stage for the Covid virus. It's also relinquished some market share in its Covid vaccines, which has been disappointing, as has its launch of its new vaccine for RSV, which is another respiratory condition. We're engaging with the management team and observing the steps that they're taking, which will help the company commercialise the exciting and powerful technology platform that they've developed. So, some of the steps that have been taken are prioritizing R&D and making some changes to the commercial leadership team.

RR: A great summary of performance, Kate. Moving on to transactions, it's so exciting to see such a rich pipeline of new ideas coming into the portfolio, five in the last quarter. Could you tell us more about them, please?

KF: Yes, of course. Well, maybe just take a step back for a moment. It has been the most extraordinary few years. We have entered and emerged from a global pandemic. We've seen the sharpest rise in interest rates in a generation. We've sadly seen the outbreak of war. We've seen the increasing concentration of the index. There's been lots going on.

But despite this dynamic backdrop, we have remained resolute in our philosophy and our process and our hunt for companies that we think have got superior growth characteristics and are able to deliver positive change to their products and services. And that work's really coming to the fore at the moment with the new ideas that are coming into the portfolio. 

I think the fourth quarter is probably a record one with five new names coming in that span two of our impact themes. So, in social inclusion and education, we've added three new names, Sea, Microsoft and New York Times. Sea is a growing e-commerce and fintech business in Southeast Asia. It shares many attributes to MercadoLibre in terms of the growth opportunity that it's got and its competitive edge, and its ability to help small businesses thrive and to provide access to financial services.

Now, although we've missed out on some of the robust share price performance in Microsoft to date, we are excited about its long-term growth opportunities in the future. And what drew us to it from an impact perspective was observing the positive impact that AI and cloud can have in driving positive change across lots of different sectors, be that be in drug discovery or in grid optimisation. We're also very cognizant, though, that AI will have some negative impacts. So, we take reassurance from Microsoft's AI standards and principles that they have in place.

New York Times is an intriguing name for an impact strategy. What attracted us to it from an impact and an investment perspective really is its high-quality journalism. So, the New York Times has a focus on investigative and ethical reporting, which has brought to light several scandals and held to account several institutions over recent years. And there are a few exciting levers to growth, continuing to grow its subscriber base in its home market, as well as internationally, to broaden its offering beyond news. And also, this is against a backdrop of an increasingly news-hungry audience, given the geopolitical backdrop.

In environment and resource needs, we've added two new names, Ashtead and Savers Value Village. Ashtead is a leading provider of equipment rental, so construction and speciality equipment in the US. We expect penetration of equipment rental to increase and Ashtead able to take share in a fragmented market. From an impact perspective, what attracted us to Ashtead is that equipment rental helps increase asset utilisation, it reduces carbon emissions and helps increase the adoption of electric and low carbon equipment.

And then finally, Savers Value Village, which I'm particularly excited about. Because for a number of years, we've been looking for a company that can help address the fact that fast fashion has got detrimental environmental and social impacts. So, we were really delighted to find Savers Value Village, which is the second largest secondhand retailer in North America. This is a growth market as more people use secondhand goods, and a fragmented market, which they should be able to take share in. And what's really exciting is it's a profitable business. Others that we've looked at beforehand have been early stage and unprofitable.

RR: Kate, I'm really struck by the diversity of new ideas coming into the portfolio. It's just very exciting. Perhaps we could spend a few moments talking about how those new buys were funded. I know that we've trimmed some of the companies that have performed particularly strongly and there's one complete sale.

KF: Yes, so the primary source of funding has been making reductions to companies that have performed well. One would include Alnylam, the biotech business, which had some very positive clinical results, which are really encouraging. But we've reduced the position size to reflect the risk and reward of such biotech companies.

We've taken some money out of MercadoLibre, Nu and Shopify to reflect strong share price performance over the course of the year. And I know that everybody's always interested in our views on Tesla. And so we've actually reduced our position there. That's continued to reduce over the course of time. And that's because from here, the upside is increasingly dependent on autonomy and robotics. These are exciting opportunities, but they come with a high degree of uncertainty and probably a lower probability of success. So, a reduction reflects that view.

Now, less significant material in terms of percentage of the strategy, but material for the impact that this company has is the complete sale of Safaricom, which is Kenya's mobile phone operator and mobile money platform. Although the core business has performed reasonably well over the course of ownership, the company hasn't really been able to capitalise on the opportunities to broaden its offering, which had formed part of our investment thesis at the beginning. And the move into Ethiopia is exciting from an impact perspective but will come with a high degree of risk and be capital intensive. So, we've decided to move on.

RR: Now, perhaps we can finish off by looking ahead. The positive change team is now 12 strong. And I'm curious, what is on your minds?

KF: So, our primary focus, Rosie, is to address performance. And we will continue to do that through continuing to try and find companies that have got fantastic investment fundamentals and exciting impact credentials. We'll also continue to do that by optimising our risk management and portfolio construction processes.

Secondly, we're really hopeful that we can be impactful shareholders. And by that, I mean that I hope that through the engagements that we have with the shares, the companies that we invest in on behalf of clients, that we can help those companies maximise their chances of success and delivering on our dual objectives, the growth and the impact. And there'll be more that you can find out about that in Positive Conversations, which will be published in February.

So, I suppose the outlook is that there's lots to be worried about, Rosie, in terms of the world. With climate change taking its pace at a terrifying toll, ongoing persistent war, it's challenging. And it's challenging as active growth investors out there, given the composition of the index and what we've seen there.

But I remain optimistic. I remain optimistic that our philosophy and process will deliver attractive investment returns for our clients, whilst also giving them an opportunity to contribute towards a better world through their investments. And that's because I continue to believe that companies whose products and services are providing solutions to global challenges are going to be the growth businesses of the future. And the data continues to tell us that it's the companies that have got superior growth characteristics that deliver superior share price returns.

So for these reasons, I remain optimistic yet focused on performance.

RR: I think that message of optimism and focus is a perfect one to conclude on. Kate, thank you so much for sharing your time and your views. And thank you so much to everybody who has taken the time to listen.

Annual past performance to 31 December each year (net%)

Annualised returns to 31 December 2024 (net%)

*Inception date 31 January 2017.

Source: Revolution, MSCI. US dollars. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised. 

Past performance is not a guide to future returns.

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