Strong stock selection and an Amazon surge led to a big month for our global fund.

 

January

Since Inception (Annualized) Inception Date: 6/16/2009

Motley Fool Independence Fund (FOOLX)

3.99%

11.46%

FTSE Global All Cap Index

2.86%

10.86%

MSCI World Index

2.44%

11.36%

For a standardized list of performance for the Independence Fund, please click here. For fund holdings, please click here.


2017 got off to a good start for the Independence Fund. Although we don’t put much stock in one month’s performance, we understand that stringing together short periods is what makes the long term. As the old adage goes, investing is a marathon, not a sprint. We didn’t set a personal record or sprain an ankle last month, but we’re setting a good pace and have plenty left in the tank.

Our outperformance during the month was due mainly to stock selection. Seven of our top 11 holdings outpaced our benchmark, and 10 of the 11 contributed positive returns. That is a white-hot slugging percentage and a bonkers batting average. It probably won’t continue, but we’ll work like heck to keep our top 11 holdings stacked with the highest-quality growth companies available at reasonable prices.

One such company, our second largest holding as of Jan. 31, is Amazon.com. Amazon didn’t do much of note in January to cause its stock to rise 9.8% — it made some announcements on content creation for its Studios division, announced that it would build two more fulfillment centers and a cargo hub, and spoke confidently about adding 100,000 jobs in the U.S. over the next 18 months. Instead, we think what drove the stock higher was the measly December sales numbers that many brick-and-mortar retailers announced. Thomson Reuters estimated that 57% of retailers fell short of expectations in the critical holiday month. We think that number is even higher if we focus on the categories Amazon competes in most directly. The December sales numbers offered more evidence that Amazon is eating brick-and-mortar retail’s lunch. That information is consistent with our thesis and it’s a trend we expect to continue for years to come.

The other major factor that contributed to the fund’s outperformance was being overweight in non-U.S. holdings in our top 11. During January, the U.S. market was up 1.8%, while non-U.S. markets drove our global benchmark up 2.9%. The benchmark’s top 10 holdings are U.S. companies, but six of our top 11 holdings are based outside the country. We benefited from strong returns from HDFC, a supremely run Indian bank; NMC Health, a growing Middle East hospital operator; and Fanuc, a Japanese robotics company.

Our biggest laggard was Bladex, our fourth largest holding, which posted a 7.6% decline for the month. While we don’t try to read too much into short-term moves like this, there are some concerns about what might happen if trade wars break out and your team is re-examining our thesis with new negative scenarios. For now, we’re comfortable with our holding of these shares, but early in the month we did trim our position a bit.

January was a quiet month on the trading front, and we didn’t add any new investments. We did, however, reduce our holdings of Bladex, DuzonBizon, Henderson Land, Horizon Global, Intel, Loews, Natus Medical, and Taiwan Semiconductor. That sounds like a lot of trading, but these moves were intended to match position sizes with our assessment of each risk-reward situation.

At the end of the month, we added to Medtronic, a diversified global medical technology company whose products affected more than 64 million lives in 2016 – or more than two people every second. Medtronic benefits from its global scale, intellectual property, and switching costs from doctors and surgeons who have been trained on its devices. CEO Omar Ishrak has focused the company’s research and development efforts, added discipline to its daily execution, and positioned the company well to demonstrate the value that its products and services deliver — and that’s on top of improving patient outcomes. Yet the stock sold off around 20% from its recent highs, so we used the opportunity to increase our stake.

 

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