10-Year anniversary of the Forager International Shares Fund: Reflections and plans for the future

Last week we passed an important milestone: the 10-year anniversary of the Forager International Shares Fund.

It has been an eventful first decade for our foray into international shares, marked by multiple significant market contractions. Measured in US dollars, the MSCI All Country World Investable Market Index, against which we measure ourselves, suffered peak to trough falls of 14% in 2015/16, 15% in 2018, 22% in early 2020 and 26% in 2022.

MSCI All Country World Investable Market Index Net in $US

We saw Donald Trump come and go, Britain leave the European Union, Western governments issue bonds at negative rates of interest and most of the world locked inside their homes to mitigate the spread of a coronavirus.

A perfectly normal decade of returns

For all of the turmoil, the end result has been pretty close to what investors could have expected a decade ago. When measured in local currency, the index has returned a touch under 10% per annum over the period. Index investors in Australian dollars have done better, 12.4% per annum, thanks to currency depreciation over the period (The Aussie was buying more than one US dollar when we launched the fund, the main reason we were in a hurry).

These are perfectly normal returns from investing in equities - long-term returns average 8-10% per annum in Australia and the US. And the power of compounding is really starting to work. A decade of returns of 11% per annum means you have more than tripled your money.

You could have achieved all of that in a low-cost index fund, though. Our job is to make our clients more than the index. A decade in, we haven’t quite achieved that. As of the end of January 2023, $100k invested with us at inception was worth $290k, thanks to a compound annual return of 11.3% per annum. That’s about 1.1% per annum worse than the index.

While it’s far from a disaster - Forager’s stock performance has been a bit better than the index, offset by base and performance fees - the next decade needs to be better. That comes down to a few key tweaks.

The DNA of a funds management business

Forager started with me and my investment approach. Most of which was in my head. That deep contrarian approach had benefits (huge winners from deeply unloved stocks like RHG and Service Stream) and shortcomings (deeply unloved stocks that went bust, like Freedom Insurance).

I recognised this fairly early and knew, especially as we grew and started running more than one fund, that we needed different skills and experience on the team. This could compensate for some of the shortcomings and give us better portfolio returns.

But I didn't realise early enough that we really needed to get the philosophy out of my head and make it a part of our organisational DNA. You can have lots of different strengths in the boat, but you all need to be rowing in the same direction, especially in times of stress.

We have had our research process written down for a long time. It contains everything you need to understand to value a business. Process, though, is different to philosophy.

I’ve always said the why is more important than the what. The work needs to get done to deeply understand as many businesses as possible. But the money gets made by buying them when everyone else is panicking. Understanding when to pull the trigger and why was something I was doing intuitively.

I've spent much of the past 12 months getting that intuition into a written form. What should a great opportunity feel like? How do we position ourselves to best take advantage of them? I want to see us more conservative in buoyant times and more patient when things start to unravel. Consistently, across the whole organisation.

It’s easier said than done, of course. But if we are going to succeed, it needs to be this coming decade. I'm turning 45 years old in a few weeks' time and will be 55 when reflecting on the 20-year anniversary. It took some time to settle on the right team, but the four of us working on this fund are close to four years together. We are managing a relatively small amount of money. This is the no-excuses decade, or else index funds it is.

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Forager Funds Management Pty Ltd (ABN 78 138 351 345). Australian Financial Services Licence (AFSL) No. 459312. PO Box R1848, Royal Exchange, NSW 1225. Ph: (02) 8277 4812. General advice only Forager Funds Management provides general information to help you understand our investment approach. Any financial advice we provide has not considered your personal circumstances and may not be suitable for you. Product Disclosure Statement: The Trust Company (RE Services) Limited (ABN 45 003 278 831 and AFSL No. 235150) is the Responsible Entity and the issuer of the Forager Australian Shares Fund (ARSN No. 139 641 491). Fundhost Limited (ABN 69 092 517 087 and AFSL No. 233045) is the Responsible Entity and the issuer of the Forager International Shares Fund (ARSN No. 161 843 778). Before deciding whether to acquire or continue to hold the product, you should read the relevant Product Disclosure Statement, any ASX notices, and seek advice from investment and taxation professionals to determine if the product is appropriate for your needs. The PDS for the Funds are available at Forager Funds. The Target Market Determination(TMD) is available for the Forager International Shares Fund from Fundhost’s website. The TMD for Forager Australian Shares Fund will be available from Forager Funds when required by law. Performance: Past performance is not a reliable indicator of future performance. The Trust Company (RE Services), Fundhost and Forager Funds Management do not guarantee investment performance or distributions, and the value of your investment may rise or fall. Total returns and estimated valuations have been calculated using the mid-point of unit prices, before taxation, after ongoing fees, and assuming reinvestment of distributions. We encourage you to think of investing as a long-term pursuit. Disclaimer: To the extent permitted by law, The Trust Company (RE Services), Fundhost and Forager Funds Management, their officers, employees, consultants, advisers and authorised representatives, are not liable for any loss or damage arising as a result of any reliance placed on this document. Information has been obtained from sources believed to be reliable, but we do not represent it as accurate or complete, and it should not be relied upon as such. The Responsible Entity of Forager Australian Shares Fund has determined that it will rely on ASIC CO 13/655 from 20 April 2022. Forward Looking Statements: Sometimes, forward-looking statements are made which reflect the expectations of Forager Funds Management about the future prospects of companies held within the portfolios of the funds. While Forager Funds Management considers its expectations to be based on reasonable grounds, there is no guarantee that those expectations will be met. Actual performance of the portfolio companies will be impacted by a variety of factors, including circumstances that cannot be foreseen, and could differ significantly from the expectations of Forager Funds Management. These statements should therefore not be relied upon as an accurate representation or prediction as to any future matters. Where portfolio companies do not perform in line with Forager Funds Management’s expectations, the funds could be adversely impacted.

Steve Johnson
Founder & Chief Investment Officer

Steve began Forager Funds in 2009, and now manages approximately $350m across two funds. Offering a listed Australian Shares Fund (FOR) and an unlisted International Shares Fund, Steve focuses on long-term investing in undervalued companies.

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