A sizzling start: How Qiao Ma delivered 62.2% returns in the first year of Munro's new strategy

The Munro Global Growth Small & Mid Cap Fund clocked its one-year anniversary back in October, and whilst Livewire is reluctant to focus on any fund’s one-year performance (past performance is not a reliable indicator of future return), in this case, we’re making an exception.

Firstly, the performance of the Fund has been exceptional (62.2% over 1 year since inception and 66.8% since inception to end November 2024) but secondly, I’ve been lucky enough to sit down with Lead Portfolio Manager, Qiao Ma, multiple times since the Fund’s inception and have been keenly interested in the journey.

I interviewed Qiao on the Rules of Investing podcast not long after she took the reins in November 2023, and then again for a Rapid Fire and Views From the Top in June this year.

For those pressed for time, the key nuggets from those interviews were as follows:

Rules of investing: Company culture is important and if Qiao determines that the culture is wrong when conducting her due diligence, despite everything else looking good, she is walking away. No 'ifs'. No 'buts'. She's not investing in that company.

Rapid Fire: When asked what gives her more joy as a stockpicker, the hunt or the reward, Qiao said, “It's really a trick question because clearly, my job is to deliver the reward to the investors, but I live for the hunt”.

Views From the Top: "There is just a tonne of companies in the mid and small-cap space, but sometimes even large caps are trading quite a bit below their historical averages while the earnings growth is accelerating", said Qiao at the time.

"We are in this really great period, as growth investors, that everywhere we go, we see lots of opportunities."

With everyone caught up, here are the highlights from our most recent conversation.

Learning from successes and missteps

While the Fund’s performance over the past year has been exceptional, Qiao highlighted a couple of key lessons.

She emphasised the importance of leaning into areas of expertise, as the Fund’s most successful investments were in sectors the team already knew well.

“It turns out the stocks we make the most money in are squarely in the centre of our wheelhouse,” she said, reinforcing the importance of deep industry knowledge and sticking to core areas of focus.

Conversely, some of the fund’s losses came from venturing into adjacent but less familiar industries.

Qiao plans to avoid repeating this misstep, focusing instead on what she calls “small boats with big sails.”

These are companies that may be small now but operate in massive, high-growth markets where Munro has a deep understanding.

“The ceiling is just sky-high for these little boats,” she noted, adding that their potential to grow quickly with strong tailwinds makes them ideal candidates for investment.

Outlook for 2025 and beyond

Qiao is cautious yet optimistic about the Fund’s potential in the coming year. While she dismissed the idea of replicating returns of the past year, she remains confident in the Fund’s structural approach.

“We aim to deliver a portfolio of stocks with earnings growing at 15% per year,” she explained, noting that this consistent growth is the foundation of long-term value creation.

The core investment thesis remains unchanged: the Fund focuses on profitable, high-growth companies in large, underappreciated markets.

“Our portfolio companies are still cheap and lesser-known,” she said, highlighting the rich pipeline of opportunities Munro continues to explore.

This pipeline reflects her team’s relentless pursuit of hidden gems in areas with strong growth dynamics and limited coverage.

Despite the process-driven approach, Qiao acknowledged that macroeconomic conditions could influence market outcomes, particularly valuations.

She identified interest rates as the single most important factor to watch.

“As long as interest rates don’t go back up, we don’t really care. But if they do rise, market multiples could come under pressure,” she warned.

However, the Fund’s focus on companies with strong cash flows and no leverage provides some insulation from broader economic swings.

Unearthing hidden opportunities

Qiao pointed to several areas where she believes the market is undervaluing potential. Semiconductors, for instance, have suffered due to geopolitical concerns, particularly around Taiwan and China. Yet Qiao sees significant upside if relations thaw.

“A whole sector of companies has been sold down to extremely low valuations. With pragmatic leadership, this could become a very attractive space,” she suggested.

She also highlighted opportunities in the climate and decarbonisation sectors. Slow government approval processes have stymied growth in these areas, but Qiao believes clearing these bottlenecks could unlock substantial value.

“None of these smaller companies really need government help, but if they get it, the impact could be significant,” she explained.

The biggest contributor to the Fund since inception - AppLovin: A 10-bagger success

One of the Fund’s standout investments has been AppLovin (NASDAQ: APP), which Qiao described as “a classic example of an lesser-known, high-quality company hiding in plain sight.”

When Munro began investing, AppLovin was trading at just $30 a share, with limited coverage and a name that deterred serious investors. The company’s core business—a software algorithm helping mobile app developers place ads—offered high margins and structural growth potential.

“We realised this company was going to generate about $3 of earnings in 2024, yet it was trading at just 10 times earnings,” Qiao recalled.

Over time, AppLovin’s algorithm proved so effective that it expanded into e-commerce, unlocking a massive new market. Earnings tripled, and the stock price skyrocketed to $320.

“This was a classic example of a small-cap gem growing far beyond our wildest expectations,” she said.

The story of AppLovin underscores Munro’s broader strategy of focusing on small companies in high-growth markets.

“For small companies like AppLovin, the room for imagination is huge,” Qiao explained, adding that the Fund’s disciplined focus on core areas allows it to identify companies with vast potential. Munro still holds AppLovin today and, for what it's worth, Qiao still sees further upside from here. 

The biggest detractor since inception: The JD Sports experience

Not every investment is a winner and Qiao reflected on JD Sports (LON: JD) as the worst investment made since the Fund’s inception. The initial investment was premised on the strength of Nike, which comprised 70% of JD Sports’ business, and the growth potential of the broader sportswear market.

At the same time, Munro held On Holding (ONON), a direct competitor to Nike.

“I thought sportswear as a market was expanding and that On’s growth wouldn’t significantly hurt Nike,” she admitted.

However, the reality was more nuanced. Nike faced pronounced brand challenges, worsened by competitors like On and Hoka eating into its market share. These issues rippled through to JD Sports.

“It turns out the brand damage to Nike was bigger than we expected. Even with the best inventory, consumers just weren’t interested,” Qiao explained.

Munro exited JD Sports by early 2024, avoiding further losses as the stock dropped another 20% after their sale.

For Qiao, the experience underscored the interconnected nature of competitive dynamics in a given sector and the importance of anticipating market shifts.

Segments and stocks of interest

Qiao highlighted Bitcoin miners as an area of interest right now. One standout in Munro’s portfolio is Hut 8 (NASDAQ: HUT), a company that mines Bitcoin and holds significant infrastructure assets.

The investment thesis for Hut 8 is rooted in its dual potential to win. First, the company holds substantial Bitcoin reserves and has a market cap of USD$1.5 billion, with USD$900 million in Bitcoin on its balance sheet.

Second, it owns power permits and land acquired during the cryptocurrency boom of 2020-2021. These assets have become highly valuable as hyperscalers—large-scale cloud providers—scramble to build data centres.

“These power permits and land assets were secured during the Bitcoin craze, but now they’re incredibly sought-after by hyperscalers looking to develop data centres,” Qiao noted.

Munro’s calculations suggest that the value of Hut 8’s data centre operations alone could exceed $2 billion, making it an undervalued asset even before factoring in Bitcoin’s rising prices.

With Bitcoin surging 50% since the Fund’s investment, the thesis is playing out on both fronts: the cryptocurrency’s growth is boosting Hut 8’s profitability, while demand for data centres adds another layer of value.

“It’s a win-win situation,” Qiao explained, emphasising her confidence in the company’s long-term prospects.

AI connectivity: Astera Labs’ growth story

Another investment Qiao highlighted was Astera Labs (NASDAQ: ALAB), a pure-play AI connectivity company. Founded in 2015 by veterans from Texas Instruments, Astera Labs specialises in high-performance connectivity solutions for AI data centres.

Unlike competitors such as Nvidia, which offers proprietary solutions, Astera focuses on providing open, scalable technologies for connecting GPUs in AI clusters.

“This is a fascinating company that’s growing at an incredible pace,” Qiao said.

Since its IPO in early 2023, Astera Labs has consistently posted sequential revenue growth of 20% per quarter. Its growth trajectory is fuelled by the booming demand for AI infrastructure, particularly in data centres.

Qiao believes the company’s profitability and scalability set it apart.

“Astera Labs is already profitable, and with its revenue growth, it’s set to reach a significant earnings level in the next two years,” she noted.

Despite its strong performance, Astera remains relatively under the radar, making it an attractive opportunity for Munro's strategy of investing in lesser-known, high-growth companies.

Celebrating a successful first year

Whilst we caught up a bit past the October 1-year anniversary of the Fund (Qiao was too busy to talk to me because she was still chasing down opportunities), she expressed pride in two achievements: one professional and one personal.

From a professional standpoint, Qiao highlighted the unique team structure at Munro where every Portfolio Manager has a stake in the portfolios.

“Since day one, every single investor has their initial next to one or more portfolio name,” she said, adding that this approach fosters a collaborative environment and makes pursuing overlooked opportunities deeply engaging.

On a personal note, Qiao took pride in balancing the demands of launching a fund with her role as a mother. She acknowledged that “getting a new fund off the ground is one of the most challenging periods in a fund manager’s career,” and maintaining a balanced and happy family life made the accomplishment even more meaningful.

Getting to know Qiao a little bit over the handful of times that I have spoken with her, whilst she would be proud of the results to date, she’s not likely to rest. As noted above, she lives for the hunt and her commitment to delivering consistent growth, regardless of macroeconomic conditions, remains steadfast.

“We’re still hunting opportunities,” she said, “and the pipeline has never been richer.” 

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