In October, Munro’s Global Growth Small & Mid Cap Fund celebrated its one-year anniversary, achieving a remarkable 62.2% return since inception. This outstanding performance stands out, not just for the results, but also for the strategic approach behind it. Under the leadership of Qiao Ma, the Fund has thrived in a competitive, dynamic market. And while many shy away from focusing on a single year’s performance, Munro’s early success is a testament to the effectiveness of its strategy and management.
In this article, I will dive deep into Qiao Ma’s journey, explore the key strategies she employed, and highlight the lessons she learned along the way. This blog aims to dissect her investment philosophy and provide insights into her vision for the future.
Munro’s Growth Fund: A Year of Exceptional Returns
The Munro Global Growth Small & Mid Cap Fund has delivered an incredible 62.2% return in its first year. Since its inception in October 2023, the Fund’s returns have continued to outpace market expectations, with a total return of 66.8% by the end of November 2024. These numbers are no small feat, and the success has been driven by a combination of disciplined strategy and meticulous selection of high-growth opportunities.
Qiao Ma’s leadership has been pivotal in shaping the Fund’s success. As Lead Portfolio Manager, she has employed a unique investment approach focused on identifying undervalued small and mid-cap stocks in high-growth sectors. This strategy, combined with a deep understanding of industry trends, has positioned the Fund to capitalise on some lucrative opportunities.
Key Takeaways from Qiao Ma’s Approach
Let’s take a closer look at some key insights from Qiao Ma’s philosophy that have driven the Fund’s remarkable performance:
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Company Culture Matters
In a Rules of Investing interview, Qiao Ma highlighted the importance of company culture in her decision-making process. If a company’s culture doesn’t align with her values or shows signs of dysfunction, she will walk away from the investment, regardless of its financial metrics. For Qiao, company culture is a non-negotiable aspect of her due diligence process. -
Living for the Hunt, Focusing on the Reward
Qiao Ma acknowledged that while the primary goal of her role is to deliver rewards to investors, she thrives on the hunt for opportunities. It’s the thrill of discovering hidden gems that drives her passion for investing. This dynamic focus is key to her success as a stock picker in the small and mid-cap space. -
Deep Industry Knowledge and Specialisation
One of the Fund’s most successful investments came from sectors that Qiao and her team knew well. By concentrating on industries with which they are intimately familiar, the Fund has been able to identify companies with high-growth potential, enabling Munro to make informed, impactful investments.
Lessons Learned: Mistakes and Growth
Despite the stellar performance, Qiao Ma isn’t blind to the learning curve that accompanies managing a new Fund. She readily acknowledges a few missteps along the way, particularly in sectors where the team lacked in-depth expertise.
- Focusing on Core Areas:
Qiao’s biggest takeaway is the importance of sticking to areas where the team has deep knowledge. Some of the Fund’s losses stemmed from investments in adjacent industries that were not part of their primary expertise. Moving forward, Qiao plans to focus on “small boats with big sails”, companies that are small today but operate in vast, high-growth markets.
The Munro Strategy: High Growth and Undervalued Markets
Qiao Ma is cautious but optimistic about the Fund’s future. While she doesn’t expect to replicate the previous year’s returns, she remains confident in the long-term strategy, which revolves around identifying companies with sustainable earnings growth of around 15% per year. This level of growth is essential for long-term value creation.
The core thesis of the Fund is simple but effective: invest in profitable, high-growth companies that operate in underappreciated markets. With a robust pipeline of opportunities, Munro continues to explore sectors with limited coverage but significant potential.
Key Investment Themes for 2024
As Qiao looks ahead, several key investment themes are likely to shape the Fund’s strategy:
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Interest Rates
One factor that could influence the Fund’s performance in 2024 is interest rates. According to Qiao, as long as interest rates do not rise significantly, the Fund will remain insulated from broader economic fluctuations. However, should rates increase, market multiples could face downward pressure. -
Semiconductors and Geopolitics
The semiconductor sector, particularly in the context of geopolitical tensions surrounding Taiwan and China, presents significant upside potential. If tensions ease, this sector could see a revaluation, offering great opportunities for growth. -
Decarbonisation
Another exciting opportunity lies in the climate and decarbonisation space. While slow government approval processes have hindered growth in these areas, Qiao believes that removing these bottlenecks could unlock significant value. Munro continues to seek investments in smaller companies in this sector, with substantial growth potential.
The Munro Fund’s Best and Worst Investments
The Best: AppLovin
One of the Fund’s standout success stories has been AppLovin (NASDAQ: APP). When Munro invested, the stock was undervalued at just $30 per share. Despite its relatively low profile, AppLovin’s core business—helping mobile app developers with targeted ads—had significant potential. The company’s growth has been astronomical, with its stock price surging to over $320, making it a 10-bagger success for Munro.
AppLovin’s success exemplifies the Fund’s focus on small-cap gems with substantial growth potential. This success story showcases the power of deep industry understanding and disciplined investment strategy.
The Worst: JD Sports
Not every investment panned out, and Qiao reflected on JD Sports (LON: JD) as the Fund’s most significant detractor. The initial investment was based on the belief that Nike’s dominance in the sportswear market would drive growth. However, unforeseen challenges in the sportswear sector, coupled with the rise of competitors like On Holding (ONON), led to disappointing performance. Ultimately, Munro exited JD Sports, avoiding further losses as the stock continued to decline.
Looking Ahead: A Year of Exploration and Expansion
As Qiao Ma reflects on the first year of Munro’s Global Growth Small & Mid Cap Fund, she remains committed to delivering consistent, long-term growth. Despite the incredible returns, her focus is on the future, where the Fund will continue to hunt for new opportunities in high-growth markets. She remains confident that the pipeline of investment opportunities is richer than ever, and that Munro’s disciplined, process-driven approach will continue to deliver results.
Photo credit: Livewire Markets
