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Felix Wintle
Fund Manager
One of the most important attributes of winning stocks is the new product cycle. Looking for companies with innovative products which meet an unmet need is a great starting point when investing in companies for the long term. Products which are either completely new or just better versions of incumbents are often taken up quickly by consumers or industries and this drives revenue, which drives margins which in turn powers earnings. It’s a trifecta that can propel stocks to super performance. During bear markets these stocks are pretty rare but, as the bear market enters its later stages, they can start to emerge and unearthing these companies is our core part of the investment process of the fund.
One such opportunity that we have recently added to the portfolio is Insulet Corporation (PODD). This company makes an insulin pump system, Omnipod 5, for diabetes patients that is normally worn on the back of the upper arm. What makes it unique is the fact that it doesn’t require tubes and doesn’t have to worn on the waist making it much more comfortable and convenient for patients. It also negates the need for needles and can be used for both Type 1 and Type 2 patients. It is the only product of its type on the market and is taking share from Medtronic, the big incumbent which is way behind the innovation curve. It has one other competitor, Tandem Diabetes Care, which although it has a device, is not on a par with Insulet and we estimate is up four years behind, by which time Insulet should be well established as the dominant market leader. As of the last quarter, its third since launch, sales were strong at $370m vs consensus estimates of $332m. This run rate implies capture of around 12-15% of new patients and is indicative of market share gains. In this seemingly ever-growing market, a new and better product is being well received.
Healthcare, and Medical Devices in particular, is a great sector to find new product cycles, another is consumer discretionary. One stock we are considering is On Holdings, the maker of running shoes. We currently own Nike, the dominant global player, which is benefitting from a shift to direct selling of its shoes, rather than through distributors, although it does maintain some of those collaborations. But in terms of new entrants, On Holding, looks very interesting. Its CloudTec running shoes, lightweight and comfortable, grew sales at a rate of over 90% in the fourth quarter year over year and boasts gross margins of 58%. With Adidas and Under Armor both experiencing problems with their offerings and some space appearing as Nike pulls back from wholesale, this brand has a compelling growth trajectory ahead of it.
Despite the economic headwinds, it’s important to always be on the lookout for new ideas and it’s typically these new companies, just emerging on their growth paths, that become the leaders of the next cycle, and it’s exciting to own them before they become household names.
WARNING: All information about the VT Tyndall North American Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not