Risk to the Emerging Companies Portfolio
Which companies in the Emerging Companies Portfolio are vulnerable to increasing inflation and/or increasing interest rates. (significant borrowings) or are these factors already reflected in current prices.?
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Answer
Hi Graeme,
By the look of the current portfolio, we’d be hopeful that many of these risks are already in the price. Of the stocks in the Emerging Companies Portfolio that have debt I’d call Capital Health (CAJ) which has about $90m borrowed, Austal (ASB) about $240m, Select Harvest (SHV) ~$370m & Bapcor (BAP) ~$500m i.e. the more mature businesses. In an environment of rising rates and higher inflation I think the concept of discretionary versus non-discretionary products or services is very important. There can be technology that is non-discretionary, we need it, and there is tech that is simply nice to have, so we are thinking about our holdings using this lens. It’s also important to think more about the future, not the hear and now. While some positions are down heavily in this portfolio, we must be focused more on what the businesses are likely to do in the future and whether they can get there. We believed that Whispir (WSP) may need cash so we cut the position, we know Zip (ZIP) will need more at some stage but the rest are okay for now, we are continuing to monitor this and will get a better sense following full year results.
