Has Forager Funds Management Changed Investment Style?

I thought Forager’s Australian fund might have changed investment style, but actually it has not changed, fundamentally.

When Alan Kohler asked Steve Johnson “Have you changed your approach to investing fundamentally?” Steve Johnson said: “I wouldn’t say fundamentally, I’m still trying to buy stocks for less than I think that business is worth and we’re still absolutely thinking like a business owner.”

When I asked if Forager had changed style (not fundamentally, just at all), they said: “If you want to say we invest on estimates of future earning power, that is 100% correct.” And I guess that has not changed. 

When I asked about the allocation to unprofitable tech stocks, they said “Yes, we have a particularly high weighting [to unprofitable tech] at the moment (about a third of the portfolio if you combine the profitable and unprofitable), because the share prices have been hammered. When they go up a lot, investors should expect us to be foraging elsewhere and that the weighting will go down.”

That’s a great response and it makes plenty of sense for a fund manager to go where they think is best. 

In that same interview I quoted above, Steve Johnson also said: “We can have small parts of the portfolio in very illiquid stocks if we think they’re going to grow and if we think they’re businesses that we can hold for 10 years and not really stress about them, but we need to blend that with some larger, better quality businesses where there’s good liquidity in the underlying trading.”

It seems that while the fundamental approach remains the same, Forager is delivering on this change. In practice, it seems that has meant investing more in tech stocks, both profitable and unprofitable.

More Buffett, Less Graham

Forager’s website says that its style is “Perhaps best described as a hybrid of the Graham and Buffett styles, we view both asset backing and earnings power as useful valuation tools, depending on the type of business we are investing in.”

The Forager June 2022 report disclosed that the fund had 17.7% allocated RPM Global (ASX: RUL), Nitro Software (ASX: NTO), and Bigtincan (ASX: BTH) between them, and also held Whispir (ASX: WSP) and Fineos (ASX: FCL), so the overall allocation to unprofitable tech was probably around 20%, at the least. 

If nothing else, this is an example of the fact that “a hybrid of the Graham and Buffett styles” evokes different things for different people!

The author owns shares in RPM Global. This article should not form the basis of an investment decision and does not intend to convey any opinion. Please read our disclaimer.

Screenshot of the description in case it ever changes:

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