Top performing funds: 3 of the top 5 global equities funds came from this manager (the best delivered 42.75%)

Having a fund in the Top 10 performing funds in a particular category in any given year is a solid achievement. What about three funds in the top five?

That’s what Munro Partners achieved in FY24, with the first, second, and fifth best-performing global equity funds in the Livewire database.

For those wanting to search fund performance, you can do so by hitting the FIND FUNDS button in the top right-hand corner of the screen, selecting SHARES – GLOBAL as the asset class and then selecting ‘performance view’ and ‘performance 1-year’ in the menus. 

Undertaking this process will show the Munro Climate Change Leaders Fund at the top of the list, with a 42.75% return in FY24, followed by the Munro Concentrated Global Growth Fund, with a 38.95% return over the same period. The Munro Global Growth Fund came in at number five on the list, with a 34.02% return.

Whilst it’s a noteworthy achievement, short-term performance is just that, and investors would always be well advised to consider longer-term returns—a sentiment shared by Munro Partners’ Founding Partner and Chief Investment Officer, Nick Griffin.

"Over the journey, you should be able to look back and, in our case, see double-digit returns over a three to five-year period. We've done that across all our funds. 

And so that, for me, is validation that our products do what they say on the tin", says Griffin. 

So, while short-term performance has thrust Munro into the spotlight, I was keen to understand what makes the team tick and how they are viewing the growth opportunity in equities right now. I was also keen to briefly explore the culture that drives the team. 

Munro prides itself on being a partnership, hence the name, with shared responsibility and success. Subsequently, I recently sat down with not just Griffin, but portfolio managers Kieran Moore, James Tsinidis, and Qiao Ma. Fellow PM Jeremy Gibson was overseas at the time.  

Growth investing and the big themes

Even though the numbers over the past 12 months look impressive, growth has been a ride over the past few years. In FY22, all the funds listed above experienced negative returns before bouncing back in FY23 and then delivering exceptional performance last financial year.

So, what does the opportunity set look like moving forward?

According to Moore, Munro is “bullish on the medium-term outlook” while acknowledging that some short-term macro catalysts, like the US election, could have an impact.

“We feel like we're in stage one of a multi-year bull market opportunity”, says Moore, adding that things like AI, which present as a massive opportunity, are still in their infancy.

“We still feel like we're early there. We still feel like we've got a lot of runway to go with a lot of the stocks that we're looking at.

If you think about AI, the actual benefits that we're going to see day-to-day have really yet to play out”, says Moore. 

Moore also likes the runway in climate, as does Tsinidis, who is co-lead on the Munro Climate Change Leaders Fund. He notes that “this year, a lot of our trades around AI merged with the climate story or the short power story”.

Tsinidis point out that data centres, for example, are very power-hungry, and the US grid is already very old, causing destabilisation in some instances.

Subsequently, a keen area of focus is on companies that help build out grid capability and energy transition. Qiao Ma points out that it is a long-term play and that investors often underestimate these long-term opportunities.

“These industrial companies that we invest in, that have some real exposure to supplying power, this is a 10-year play.

“The world is going to need a massive amount of clean power, and a massive amount of cooling equipment to power these massive data centres”, says Qiao. 

According to Tsinidis, the big movers for Munro have been Nvidia (NASDAQ: NVDA) and Arm Holdings (NASDAQ: ARM), which make the data centres more efficient, while on the power generation side, US nuclear generator Constellation Energy (NASDAQ: CEG) is the standout – more on those names below.  

Griffin has been on record numerous times over the last five years talking about Nvidia. He has ridden the wave, with the stock dropping as much as 50% at one point early, before turning into the story it is today.

When asked which company he thinks we will be talking about in the same way in five years’ time, his response is…. “Nvidia”.

Call him a true believer, but he backs it up with insights;

“What people are missing with Nvidia is they've effectively cracked the way to make computers go faster with accelerated computing.

"They have a huge market share. Competition will come for them, but companies have to lean into this technology. Nvidia still has a very long runway for growth, that a lot of the market is underestimating. 

"People forget Apple was this great company, and every year it was going to die, and every year it just kept going and going and going. Nvidia is set up very similarly right now. 

"They're dominant in the technology that everybody wants. They'll be able to layer stuff on top of it in terms of software, and I think Nvidia is like Apple was in 2011 and 2012— we think it still has many good years in front of it,” says Griffin. 

Adding to Griffin’s comments, Qiao points out that Nvidia is not only leading its space but also accelerating away from competitors.

“We've studied carefully what [Nvidia founder] Jensen Huang does. Even when he was making cards for PC gaming, what sets Nvidia apart from competitors is coming up with a new product every single year. At some point, nobody can keep up.

"This is really amazing. Not only is there a gigantic gap between Nvidia and its competitors, but Nvidia is still running faster, so the gap is widening", says Qiao.

Both Griffin and Tsinidis spoke about Constellation Energy, the latter highlighting that the nuclear industry generates 20% of US power and Constellation Energy is the biggest single operator in the country, which is becoming increasingly important as coal and gas plants are being closed.

“The nuclear piece becomes even more important for powering these data centres, which obviously can't go down.

"The big story has been the signing of deals directly between the data centres and these nuclear companies, to provide certainty in powering the data centre, but also power it with zero emissions”, says Tsinidis.

Interestingly, Munro owned Constellation before the ramp in demand from data centres. Griffin pointed out that the company has a $60 billion market cap and owns 16 nuclear plants that cost around $15 billion each.

“They are the nuclear unicorn on the planet today. Just a hugely advantageous infrastructure position.

"I really like it on any three to five-year view, and just can't see how anyone can replace what they have”, says Griffin. 

When asked for companies that he believes have exceptional growth potential right now, Moore offered Amazon and Comfort System – two companies at the opposite ends of the market cap spectrum: $1.9 trillion vs. $11 billion.

Regarding Amazon, Moore believes that as well-researched as the company is, people still mis-model Amazon’s earnings potential.

“If you look at their e-commerce business, North American ex-AWS we think is going to generate about $380-400 billion of revenue this year. If you take the advertising revenue out of that, it's basically not profitable. That's going to change as the business becomes more efficient”, says Moore.

As for AWS, Moore believes it’s set for an “enormous reacceleration” because of AI.

“It was growing at 12% over the past couple of quarters. It has reaccelerated to high teens and that should hopefully go towards 20% next year.

"For a hugely profitable business in AWS, a big revenue re-acceleration is really meaningful. 

"So there's a couple of really important drivers for the earnings, but I don't think consensus has modelled those correctly. There's upside there”, says Moore. 

Comfort Systems is a mechanical and electrical engineering company based in Houston, Texas.

“It's effectively like an outsourced workforce, like a contractor”, says Moore, adding that “They're seeing tremendous growth from doing mechanical and electrical engineering work for data centres, the build-out of data centres that are needed for AI”.

The morning of the interview, Comfort Systems had reported 40% revenue growth, justifying Moore’s belief that the thinly covered company offers “a pretty exciting earnings opportunity”.  

When asked for the stock that best highlights the Climate Opportunity – which Tsinidis believes is just getting started despite all the hype - he nominates Clean Harbors.

According to Tsinidis, the company does a lot of work cleaning up contaminated sites, including land and water.

“Think about the Gulf Coast with all the chemical plants. Think about industrial companies that have to get rid of their toxic waste - that's the core business”, says Tsinidis.

The cleanup of PFAS chemicals, also known as ‘forever chemicals’, is a huge total addressable market, according to Tsinidis, with more and more companies outsourcing cleanup requirements to focus on core activities.

Clean Harbors also recycles oil from the likes of motor mechanics, which has traditionally been a volatile part of the business. This is a big part of the reason why Tsinidis thinks the company is undervalued.

“It's a neat little business flying completely under the radar. It trades pretty cheaply because people look at it as cyclical and tied to oil refining”.

Tsinidis sees this as a mischaracterisation, believing the company should start to attract a green premium which will lead to higher profits. And if and when the oil recycling business falls away, there is another type of recycling the company will lean into – batteries. 

Any fair-dinkum growth investor will tell you that the experience can be a white-knuckle ride. It’s not like having a balanced portfolio where some stocks will perform at any point in the cycle, and some won’t. Growth investors are hog-tied to growth and need to be glad of their chains to be successful. They also need to have the right temperament.

So, how do Griffin and Co. stay balanced? Maths and culture play a big part.

When things don't go as planned, the team leans on the process, which is driven by the maths. 

“We spend a lot of time doing the maths on companies. We firmly believe that companies will follow their earnings over the long run, and if we forecast their earnings correctly, then the share prices will ultimately follow their earnings

“That's worked very well for us for a long period of time. And often it's just a case of falling back on that maths… Nothing's really changing with our maths, so why should we change our view?”, asks Griffin. 

As for culture, he highlights some core tenets, including setting simple objectives and communicating them clearly with staff—“the best companies in the world do that,” he adds.

For Munro, one of those objectives is double-digit returns over the long term, and to achieve that requires “turning over stones”, says Griffin.

“We want people who are very curious,” says Griffin. Moore reinforces this sentiment, saying that the best thing about coming to work at Munro every day is getting to analyse a range of different businesses from all over the world.

“The variety and diversity of work in trying to find a great business that might be small and niche and in a particularly small economy, versus a company that might be dominating in hundreds of countries around the world, it's pretty amazing, to be honest”, says Moore.

Griffin also mentions “acting like an owner” and “doing what it says on the tin” as key elements of Munro’s culture, but if he had to distil it down to one thing that he values most, it would be people who can “be themselves in every meeting”.

By that, Griffin means “people will speak up if they feel they need to, and will actually say what they think – not what they think someone wants to hear”.

“It's incredibly hard to build an environment that allows that to happen, but the best companies do it really well, and that's what we try to do here,” says Griffin.

It seems to be working. Relatively new team member, Qiao Ma, has been with Munro for 18 months and has spoken about the importance of culture when investing – or choosing a business to work for. 

What she found attractive about Munro’s culture is its tailored fit for growth investing.

“So it is very competitive, very engaged and concentrated, and very intense. The work is very deep, but at the same time, everybody understands that growth investing is a journey. When you have a tough time, that's when the culture kicks in,” says Qiao.

She goes on to point out that the team has a trigger review, which kicks in when a stock falls 20% from the high or 20% from the cost of entry. At that point, a robust conversation ensues, and the team collectively decides whether to cut and run or stick fat.

According to Qiao, that process allows anyone in the team to feel “like other people are doing the work alongside you, that they're in your corner, and that the team is having a conversation about the stock, not about you and not about your personal ability to pick stocks”.

The process appears to be paying off for Munro. Qiao points out that since its inception, over 7 years ago, the Munro Global Growth Fund has not lost more than 100bps on any position. For example, if 5% of the portfolio was in stock XYZ, it only takes that stock falling 20% to be down 100 bps.

“Just think about how many stocks Munro has traded annually in seven years, our trigger review process has meant that we’ve never lost more than 100bps on any one stock", says Qiao. 

The final word

While Griffin is a big believer in stopping to enjoy success, he was jokingly reluctant to participate in this interview.

“It is hard because as soon as you book a celebration lunch or you write a celebration article, you feel like you could be jinxing yourself", says Griffin, adding that “things are never as good as they look and things are never as bad as they seem". 

“You're never going to get it perfect. Your job is just to get it more right than wrong over a long time", says Griffin. It's safe to say that over the past 12 months in particular, Munro Partners has done its job.  

Invest in the journey

Munro Partners is an investment manager with a core focus on global growth equities. Growth investing traverses a financial landscape years in the making, with years more to come. The landscape is always shifting, so take the path with a guide experienced in the journey. To learn more, visit the Munro website, or fund profiles below. 

Managed Fund

Munro Climate Change Leaders

Global Shares

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Managed Fund

Munro Concentrated Global Growth

Global Shares

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Managed Fund

Munro Global Growth Fund

Global Shares

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