Extending the metaphor of soccer team to my portfolio, I treat the two mini-funds that I have as my U23 and U18 teams. The U23 team is my SaaS fund and U18 team is my US micro-cap fund based on my subscription to Motley Fools Rising Stars 2020 service. I did an update in May and think this is a good time to do another update. I will also highlight a few players who have the potential to be promoted in the future.
U23 (SaaS fund)
Since the May update, the team size has grown from 8 to 13. With its superb form, I have promoted Shopify to the main team in August and I parted way with Mongodb as I needed to raise cash to purchase the new players. Alteryx, Atlassian, CrowdStrike, DocuSign, Paycom, ServiceNow and Teladoc (from merger with Livongo) are the 7 players who joined the team.
U18 (US Micro-cap fund)
Based on the conviction level provided by the service, I decided to only keep 25 counters instead of varying the amount of investment over the 40 counters. Not going to reveal their names (with one exception that I will mention later) as it is still an active subscription service.
Both teams have done extremely well and way beyond my expectation. The original intention of US Micro-cap fund is for it to double in 5 years time but as seen from the above chart, it is already up by 80% in just eleven months . If I include my subscription fees, my personal tracking shows that it is up by about 56%. The pandemic has accelerated the digitalisation process and SaaS companies have hugely benefitted from it and that has resulted its exception return of 88% in just 10 months time. And that despite me starting this portfolio just before the March crash.
While the portfolio size is small, they have definitely provided a boost to my overall return. However, both portfolios are more volatile and experienced larger maximum drawdown.
As mentioned, I have promoted Shopify to the first team and it is now part of the front 3. Among the rest, who have the potential to break in to the first team?
For the U23 Team, Trade Desk, Veeva System and Twilio are in the leading pack. Among which, I prefer Veeva slightly more as it is already producing earning and growing its free cash flow for quite a number of years. As for the U18 Team, the outstanding player is Fiverr. Already a 4-bagger for me this year, it does look like it has much potential to continue to grow based on its latest quarterly report.
Time to spend a bit of time to learn more about the above four, so that when the time come, they can transit smoothly to the first eleven.
I am glad that I took the plunge then to try something that I am unfamiliar with. Now that I am more familiar about them, I am going to invest slightly more into them. Their growth rate might be lower than current year but they have a long runway to continue to expand their businesses and hopefully a few of them can become giants in a decade time.
Oh yar, may I know who are the analysts for rising stars?
Tim Beyers Analyst
Andy Cross Chief Investment Officer
Tom Gardner Motley Fool Co-Founder & CEO
Abi Malin Analyst
Bill Mann Director of Small-Cap Strategy
Thanks man. I subscribed to cloud Disruptor and learnt alot how they look at the whole cloud industry. Do you find it educational for rising stars? Do they have small and micro caps equally across all industries? Sorry for the many qns as I was thinking if I want to subscribe to it in the near future. Thanks
It’s educational for me as I learned about their strategies. But I would say I benefitted more from their deep dive series, ad-hoc publication that came together from their premium services. The spread seems all right but in general tech focus. Industries include retail, insurance, health care, genetics, properties.
Thanks much for your inputs
Hi Kin Chuah, can I find out if the 82% was driven by just a small number of compaines in rising stars or most of their high conviction compaines are getting high returns?
Hi, I think this year has been an exceptional year for the micro-cap. As seen below, 13/26 counters I held has return more than 100%. However, if we look at return beyond 200%, that’s a quarter of the counters. So the 82% return is not driven by a small number but I think eventually only a small number will provide the exceptional return.
Gain/Loss No. of counters %
>= 500.0% 0 0.0%
>= 400.0% 1 3.8%
>= 300.0% 1 3.8%
>= 200.0% 5 19.2%
>= 100.0% 13 50.0%
>= 50.0% 19 73.1%
>= 25.0% 23 88.5%
>= 0.0% 24 92.3%
< 0.0% 2 7.7%