A monthly update of the Compound 8 to 80 Portfolio…
Performance Review and Market Environment
The 8 to 80 Portfolio declined 2.36% (net of fees) in March.
There was a sizeable correction that began in mid-February in high growth and momentum names (see here for a more detailed post on this). A number of the 8 to 80 portfolio holdings were within this group. Many of these names benefitted tremendously from the transition to the stay-at-home economy in 2020, both in terms of fundamental growth and share price appreciation. A pullback was not unexpected given their sharp runup. As the economy continues to reopen and we approach herd immunity in the coming months, a different environment awaits. We’ve never been in this situation before so no one knows what happens next. Technology is not going away but the growth rates we saw in 2020 are not sustainable and investors should temper their expectations for the future.
We used the weakness in March to add new names to the portfolio that have been on our radar and increase exposure to some existing positions.
–Zoom reported record revenues of $883 million during Q4, up 369% over the prior year.
Net Income also hit a record of $260 million, a 1,633% increase from the 4th quarter of 2019.
Zoom also reported 467,100 customers with more than 10 employees, a 470% from the same quarter of 2019 (source).
During their quarterly call, Zoom highlighted the significant growth in Zoom Phone, up 269% YoY for companies with more than 10 employees.
–Nike reported a 2.5% increase in Revenue that fell short of expectations ($10.36 billion vs. $11.02 billion expected) but Net Income of $1.45 billion widely beat expectations. China sales (+51% YoY) were the bright spot while North America (-10% YoY) disappointed due to supply chain issues. Nike continues to power ahead with their digital transformation (e-commerce +59% YoY) and expects online sales to make up more than half of total sales within a few years.
–Tencent reported another record quarter of Revenue ($20.2 billion, +34.2% YoY) and Net Income ($8.9 billion, +192% YoY).
–Lululemon reported record revenue ($1.73 billion, +24% YoY) and net income ($330 million, +10.7% YoY) that beat analysts’ estimates. Online sales increased 92% as consumers shifted their spending habits during the pandemic. Overall, direct-to-consumer sales represented 52% of total sales during the quarter, up from 33% of sales a year ago. Lulu was optimistic in its outlook for future sales, upping its Q1 guidance and increasing its full year 2021 expectations to over 27% annual growth.
-Spotify announced an acquisition of Betty Labs, maker of the live audio app Locker Room. Spotify will rebrand the app in the future and let anyone host conversations on it, competing directly with the increasingly popular Clubhouse and Discord.
The top performers during March were Facebook (+14.3%) and McDonalds (+8.7%).
The bottom performers during March were Zillow (-19.6%) and Twitter (-17.4%).
New positions were initiated in Peloton, Elastic, and Jamf.
Position size in Zillow was increased after a sharp decline. Position size in Adyen was increased.
End of Month Exposures
Cash and Cash Equivalents: 29%
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security.
Past performance is no guarantee of future results. Performance results are shown net of fees and include dividends and other adjustments. All performance data is strictly illustrative and may differ from actual results.
Discussion of portfolio holdings are for illustrative purposes only and are not investment recommendations. The portfolio holdings are subject to change at any point in time.
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