Your (un)Official Guide to Hearts & Minds 2020

Patrick Poke

Livewire Markets

Each year, the leading investment minds from overseas and locally gather for the Sohn Hearts & Minds Conference. In past years the conference has featured Howard Marks, Ray Dalio, Cathie Wood, The Hon. Paul Keating, and ‘The Queen of Small Caps’, Leah Zell. Even COVID couldn’t stop the event this year, which moves online, but features a guest list every bit as impressive as past years.

Hearts & Minds draws inspiration from the flagship Sohn Conference by inviting speakers to pitch their best investment idea for the next 12 months in an 8 minute ‘TEDx-style pitch’. Hearts & Minds is the official Australian affiliate of the Sohn Conference Foundation, which was founded in 2006 to raise money for medical research. The concept was originally launched in 1995 as the Ira Sohn Research Conference, in recognition of Ira Sohn, a promising Wall Street professional who died from cancer aged just 29. As of 2019, the Foundation had raised more than $90 million.

In 2020, legendary fund manager, Bill Ackman makes his first appearance at the conference. Bill is the founder and CEO of Pershing Square Capital, an $11 billion hedge fund that’s famous for its ‘activist’ investment approach. He’s made controversial bets that have cost the firm hundreds of millions of dollars, but in other cases his bold choices have also paid off – including a $2.6 billion dollar winning bet that markets would be ravaged by COVID earlier this year. That bet has contributed to Pershing Square’s 53.5% gross return in 2020 (43.7% net return).

Also making an appearance in Scott Galloway, Professor of Marketing at NYU Stern School of Business where he teaches Brand Strategy and Digital Marketing. Scott is a serial entrepreneur, having founded 9 companies, including L2 Inc, which was acquired in 2017 by Gartner for $155 million. He’s also served on the board of directors for The New York Times Company, Urban Outfitters, and Berkeley's Haas School of Business, among others. His podcast, “The Prof G Show with Scott Galloway” is one of the most popular business podcasts in the world.

They’re joined by a host of top talent from Australian funds management, and speakers from the medical research sector.

The stocks

Picture: Cathie Wood from Ark Invest pitching Tesla at the 2019 Hearts & Minds

Every year, the speakers each share one stock idea for the year ahead. These stock ideas then form the backbone of the Hearts and Minds listed investment company (HM1). After putting in an impressive 27% return in 2018, 2019’s stock ideas performed even better, racking up an incredible 104% return. Ark Invest’s Cathie Wood led the way, with a 546% return from her controversial pick – Tesla. Tesla didn’t do all the heavy lifting on its own though. Eight out of the 10 stocks from last year’s conference managed a positive return, with six returning more than 50%, and three returning more than 100%.

The top three stock pickers this year were:

Notably, all three of the top performing stocks are traded on the NASDAQ, which has been one of the top performing stock markets in the world this year.

Click on the image to enlarge

Three different approaches – how did they play out?

Last year, Livewire’s James Marlay outlined three different strategies for investing in the Sohn Hearts and Minds stocks.

1) The Hail Mary

Quite simply the approach entails reviewing all the stock pitches and taking a punt at backing the best ideas from the day.”

This strategy can clearly have mixed results, with outcomes ranging from -6%, to +546%. With a median return of 65% among the group, compared to a 9% return for the MSCI All-Country World Equity Index, there’s a good chance that you’d have come out ahead even if your ‘research’ involved putting the names on a dartboard and throwing darts at them blindfolded.

2) The Scatter Gun

“If trying to single out the best few ideas isn’t your thing then one approach could be to hedge your bets and back each idea that gets presented.”

Buying a bit of everything would’ve seen you more than double your money (+104%) in the past year! Not a bad showing for a year in which economies were shut down, borders were closed, a global pandemic ensued, and we experienced the deepest (and shortest) recession in a generation.

3) Hearts & Minds Investments (ASX:HM1)

“In simple terms, it is a listed investment company that gives you exposure to most of the ideas presented at the conference. It sounds a bit like ‘The Scatter Gun’ but there’s more to it.”

Rather than simply buying everything, one option could be to pick up the listed investment company that does that for you – HM1. As James alluded to above though, HM1 isn’t just the basket of stocks from the conference. The core managers are responsible for 65% of the company’s capital to allocate to their three best ideas. The core managers are Caledonia, Cooper Investors, Magellan, Paradice Investment Management, Regal Funds Management, and TDM Growth Partners. The remaining 35% of the company’s capital is allocated between the stock ideas from the conference.

This approach has produced an outstanding result for investors over the past year. In the 12 months to 31 October 2020, the underlying fund has returned 40.5%, compared to the MSCI World Net TR Index (AUD), which returned just 2.4% over the same period.

Since launching the company in November 2018, the share price has increased by 73.2% (at as 6 Nov 2020).

Key lessons from the CIO

After two years running the Hearts & Minds Investments portfolio, Chief Investment Officer, Rory Lucas, has learned some valuable lessons along the way. In order to achieve a great outcome for investors, he believes that keeping an open dialogue with the managers is critical. HM1 doesn’t simply buy the stocks after the conference and hold them for 12 months. They liaise with the managers throughout the year, and adjust exposures based on feedback. This has benefited HM1 investors both with the winners, and the underperformers.

Discussing some of the underperformers from 2018, Rory told us of one company that returned -33.8% over the course of the year, however, through actively monitoring the position with the manager, HM1 managed to eke out a slight gain of 2% from the stock.

Among the winners, he pointed to Tesla, which they traded actively on several occasions over the past year. After rallying strongly in the months after the conference, they reduced their position pre-COVID. After the share price was hammered during the February and March volatility, they were able to buy back into the company at almost the same price they’d paid several months earlier. They’re since trimmed the position several more times, leaving some upside exposure, while locking in attractive gains.

“This meant that our risk adjusted return was fantastic, netting a 250% return for the portfolio with far less average exposure.”

Rory said that given the 12-month window for these investments, it’s important to give the managers a chance to take some money off the table, and book profits along the way.

“12 months is a short time for an investment horizon! The importance of near-term catalysts for share price appreciation is paramount.”

He also emphasised that not every position is going to do well,, so it’s important to let winning positions run, and cut losing positions ASAP if the investment thesis changes.

2020 Virtual Conference

Cathie Wood, Nick Griffin, and Beeneet Kothari are all back in 2020, along with Bill Ackman, Scott Galloway, and many others. Be among the first to see their stock ideas and presentations

The Virtual Conference starts at 8am on 13 November, you can find out more by clicking here.

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Managing Editor
Livewire Markets

Patrick was one of Livewire’s first employees, joining in 2015 after nearly a decade working in insurance, superannuation, and retail banking. He is passionate about investing, with a particular interest in Australian small-caps.

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