Facebook and Apple

mayo 12 2014
GAMAX Management AG today announced that given the current low growth environment, it is important to invest in a collection of high quality companies trading at a discount to their estimate of their intrinsic value.

Their GAMAX Funds Junior (ISIN LU0073103748) managed by their partner DJE Kapital AG, invests in companies have with competitive advantages in revenue growth from targeting young global consumers.

An example of such a company is Apple Inc., a significant stock holding within the GAMAX Funds Junior. Jan Ehrhardt and Moritz Rehmann, Fund Managers for the GAMAX Funds Junior remain unruffled by the recent price declines of Apple as they believe the firm’s financials remain solid and the growth prospects attractive. The Fund has not participated in the Facebook IPO as concerns remain on the firm’s valuation.

Jan Ehrhardt Sticks with Apple

“In the first four months of the year, Apple was once again one of the strongest performing stocks worldwide, so the temporary consolidation shouldn’t be blown out of proportion,” assures Jan Ehrhardt of DJE Kapital AG. Ehrhardt manages GAMAX Funds Junior together with Moritz Rehmann. 

The latest quarterly figures from the consumer electronics giant once more handily outstripped market expectations. Apple sold 15 million iPhones – far more volume than anticipated. And, customers still have to wait one to two weeks for delivery of the iPad. 

Moreover, in the view of the fund management, Apple has responded correctly to the growing criticism of conditions at production plants in Asia by exerting pressure on suppliers to improve. Apple has also joined the Fair Labour Association, which conducts independent inspections of production facilities.

Whether Apple can continue to succeed and maintain its unique position without visionary, Steve Jobs, will become clear over the next few years, according to the fund management. There are still no concrete indications as to how deep an impression Jobs left on the company culture. “But, the team surrounding Steve Jobs had a great teacher, and it would indeed be astounding if we didn’t see a talented developer jump at the chance to fill his shoes,” says Ehrhardt.

Another top position in the GAMAX Funds Junior portfolio is South Korea’s Samsung, Apple’s main competitor in smartphone business. The two companies take a different approach, giving both a unique market and customer base. 

“Samsung’s stock has also performed very well in the past,” says Ehrhardt. But, he adds, unlike Apple, the company lacks a clear focus. 

Consequently, Samsung does not compete with Apple in the portfolio, but rather complements that position.

Facebook – a Highly Priced IPO

The portfolio managers agree that, from a thematic perspective, Facebook would be a good firm to include in the GAMAX Funds Junior portfolio. The managers have followed Iast Friday’s IPO of the US-based company. The data available in the run-up to the market launch pointed to a range between USD 28 and 36 per Facebook share. 

On Thursday Facebook set the price on 38 USD per share, which resulted in a market cap of USD 107 billion. 

“There is a high degree of expectation priced in to this valuation,” says Ehrhardt, who has no current plans to invest. 

In 2011, the company generated revenue of 3.7 billion, 85 percent of which from advertising. It posted a profit of one billion dollars (USD). “In other words, finding a fair level of valuation means looking far ahead into the future,” he cautions.

Products - The Primary Driver of Success

GAMAX Funds Junior invests worldwide in companies that offer products and services to a young customer base. The managers research the markets for promising global trends. 

“For us, individual products are the primary key to the success of a company,” says Fund Manager, Moritz Rehmann.

This is the starting point for analysis: How well is a product received by the target group? Which products are given a positive or negative review by relevant industry publications? After answering these questions, the company behind the product is subjected to scrutiny – including financial analysis and personal contact.

“Facts and figures can only provide a view of the past. But, future strategic direction is one of the most important aspects for investment decision making, and we discuss this directly with the people responsible at the company,” says Rehmann.

Quality Companies with Strong Products and Brands Prevail in Volatile Markets

The managers are proud of their investment in Yum! Brands that operates restaurant chains KFC, Pizza Hut and Taco Bell. “We were one of the first fund management companies to anticipate the recovery of Taco Bell's US business. The brand group is also seeing sustained growth in Asia, where the chicken products from KFC are a huge hit with consumers,” Rehmann explains.

In the coming months, the portfolio managers expect markets to remain volatile. According to Rehmann: 

“In this kind of environment, we foresee companies with strong brands coming out on top and having the ability to monetize their products, especially in growth markets.”