Aritzia (ATZ-TSX) is a company we have held in our Global Equity Growth Fund since 2018. In our initial report, we compared Aritzia’s U.S. growth opportunity to that of Lululemon, given their similarities in target market and Direct-To-Consumer approach. As Aritzia has proven successful in gaining U.S. market share (revenue has grown at a 41% CAGR), we are extending our analysis to other successful retail growth brands by comparing Aritzia with not only Lululemon (LULU – NASDAQ) but Inditex (ITX – MC). ITX is a Spanish-based global apparel and accessory retailer with a collection of seven brands, most notably Zara, and 2021 revenue totalling €27B . Other ITX brands include Bershka, Massimo Dutti, Pull & Bear, Stradivarius, Zara Home and Oysho. Read

We are reviewing Linamar this month as we believe it represents a very timely investment opportunity. I have personally followed this company since it came public in 1986, when I was an analyst at what is now BMO Capital Markets. The company which generated about $40 million in annual revenue at the time, has grown by almost 200x over the last 36 years. Next year’s revenue is expected to pass the $8 billion mark.

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After years of stimulus and low interest rates, the Federal Reserve has tightened its monetary policy. This has shortened investor time horizons and brought into focus current profitability versus future profitability. When capital is cheap and abundant (e.g., 2021), hurdle rates tend to be lower and companies can easily raise funds. This can result in an environment where companies have a long leash in terms of demonstrating profitability and cash flow. Many companies used this environment to grow at any cost and with no regard to profitability. With capital now more restricted, companies that exercised poor capital discipline may now find themselves lacking capital and needing to rethink their business models. Read

European Residential REIT (ERES) is a newer addition to the MWG Income Growth Fund, with a 4% weighting. We owned a prior edition of the REIT (one with a commercial focus) in 2019, exiting our investment after an acquisition/restructuring by CAP REIT, a large Canadian multi-family REIT that owns 66% of ERES units. We added the name back to the portfolio as the REIT emerged with a new strategy focused on multi-residential units in the Netherlands. We believe there are several tailwinds that should benefit the units. Read

This war is a human tragedy and breaks the world order that has held since the end of WW2, as did the Korean War and Vietnam War. All these wars were fought on the edges of the East/West political divide.

Ukraine has been part of the East for all of modern history until the removal of the last Russian puppet president, Viktor Yanukovych in 2014. Restoring a Russian puppet has been Putin’s focus for the last decade. His population is also suffering from a rapidly declining standard of living, and he must distract them. Russia spends 4.3% of its GDP on the military, the third-highest globally and ahead of the U.S at 3.7%. This has punished the population’s standard of living. Guns or Butter is the economic expression for this and refers to a governments’ allocation of military spending versus civilian spending. Putin may end up like Gorbachev, with an economy crushed by military spending and a very unhappy population. Putin’s only hope is Vodka and its tempering the enthusiasm for protest. Putin does have higher oil prices, decent foreign reserves and perhaps a supportive China on his side. Read

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Zalando (ZLNDY) is a leading European ecommerce apparel company with 39 million active customer accounts that should generate sales with a Gross Market Value (GMV) of EUR14B in 2021. The customer value proposition revolves around Zalando offering a vast assortment of brands and products and provides an easy shopping experience that includes delivery and return of unwanted items. This value proposition and the company’s broad European reach have made Zalando the starting destination for fashion in Europe, with operations in 27 countries. Figure 1 demonstrates Zalando’s leadership and growth in active customer accounts. Read

Dollar Tree (DLTR) is the second-largest operator of discount variety stores across North America, offering a range of basic and seasonal goods. The company’s brands include Dollar Tree and Family Dollar, split between roughly 15,000 locations. This is our second round owning DLTR stock (we will refer to the corporate company as DLTR to distinguish it from its store brand). We previously exited in early 2019 as management failed to execute on its post-merger strategy after acquiring the Family Dollar brand in 2015. Ingrained in the DLTR culture at the time was a commitment to the $1.00 price point, and despite showing a willingness to adopt a multi-price point strategy, the previous management was stubbornly slow to implement. This led to sluggish growth at Dollar Tree and unrealized synergies with the acquired Family Dollar stores. Read

Amazon is a customer-centric company that strives to make life easy and convenient for customers. Although well known as an online retailer and e-commerce site, Amazon’s other business units are increasingly driving the profitability of the company. We believe Amazon is on the cusp of an explosion of profitability that will drive the share price higher. Read

Global electricity demand is expected to grow by 50% over the next 30 years. This demand, when combined with growing societal pressure to remove carbon from the atmosphere, will be a challenge for the world. Read

A big investment theme for the next decade is the shift to digital living from physical. We are learning that we can complete many tasks more effectively through computing intermediaries. Remote meetings and online conferences eliminate travel and commercial space requirements, telehealth provides safe and quick access to medical professionals, and perhaps the largest category, e-commerce allows us to shop an unlimited selection of goods from our couch. Read

Alliance Data Systems (ADS) is a provider of retailer loyalty solutions, most prominently through its white-label credit card program and the Air Miles rewards program in Canada. Let’s be honest – Alliance Data Systems has not been a stellar performer in the Global Equity Growth Fund. We originally purchased the shares in 2018, with our sights set on a turnaround through the streamlining of the business. However, its core business deteriorated more than we anticipated, and the pandemic-driven closure of physical retailers negatively impacted the company’s 2020 earnings. Entering 2021, we are encouraged by the improving physical retail environment as well as steps the company has taken to strengthen its strategic position. These have involved a renewed focus on growing with online retailers, hiring an outsider CEO and, most importantly, the acquisition of Buy Now, Pay Later (BNPL) company “Bread”. Read

The recovery progresses.

We believe economic activity will start to normalize in summer 2021 with multiple vaccines demonstrating efficacy in building immunity to Covid-19. Global GDP has already recovered to pre-Covid levels, although the composition has changed with a higher contribution from technology and consumer goods versus services. Morgan Stanley estimates point to strong rebounds through 2022, with GDP growth moving above its previous trendline. Read

Intuitive Surgical is a leader of robotic surgical systems (you can find more information here). While robotic surgery sounds futuristic, Intuitive’s systems have been used for over 20 years. In 2019, its systems were used in almost 900,000 surgeries. Robotic surgery provides for increased precision, faster recoveries, and lower risk of complications as well as less stress on surgeons. Its growth revolves around increasing market share through the sale of additional devices, the increased training of surgeons, and the expansion of the type of surgeries that can be performed robotically.  The company is extremely profitable, with a razor/razorblade model. Once the units are placed on-site, they generate ongoing instrument sales and service revenue. Read

This week, Airbus, one of the world’s largest commercial aircraft manufacturers, announced a lowering of its expectations for aircraft deliveries due to the weak travel market. With the Coronavirus pandemic grounding global air travel, driving affected equities down 50-70% from their pre-COVID highs, it’s worth revisiting the sector to see if there is opportunity to invest for a rebound. In this piece, we will examine the issues at hand to see which factors are the most significant in figuring out when or if a rebound can be expected. Read

There is a lot of talk comparing the current market to that of 1999-2000. True, technology is eating the world, and while the current outlook for further penetration is favourable, the same arguments could have been made about the millennium market (the dawn of smartphones, expanding internet access, better compute efficiency). However, we believe there are substantial differences that make today’s sector much more defensive. As the world entered the new century, there was fear (Y2K) that the large base of installed computer and communications systems was not programmed to handle the new millennium. This was accompanied by the rapid rise of the internet and a plethora of new issues based on ideas for how to use the internet. Many went to large valuations without any real business traction. We also saw a complete rebuild of the world’s communications networks, with a shift from copper to fibre transmission, which led to massive overcapacity. Nortel peaked at about 35% of the S&P/TSX. Read

Less than a decade ago, Netflix embarked on the international expansion of its eponymous video-on-demand streaming service, a significant shift from its DVD-by-Mail strategy that had delivered more than one billion DVDs to its members. Netflix’s success can be evidenced by its revenue growth, rising from US$2.2B in 2010 to US$20.2B in 2019. At the heart of this growth is the Flywheel strategy it uses to perpetuate its growth.   Read

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