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[00:00:17] We've seen markets sell off after the recent Liberation Day tariff announcements. Can you talk to us about what impact these tariffs have had on your fund?
It's been a dramatic week in equities, with the S&P 500 experiencing one of its sharpest two-day declines on record, and the ASX 200 also seeing significant drops. However, it's important to note that these declines have only brought the markets back to where they were a year ago, essentially giving back some strong returns from the past six to twelve months.
The impact of tariffs can be categorised into two buckets: direct impacts on our holdings and broader economic effects. Direct impacts are expected to be limited, as only three of our top 15 holdings sell physical goods into the US, and two of those have local manufacturing. Supply chain cost inflation may have some effect, but overall, the impact should be minimal. The broader economic effects are harder to predict, with many unknowns about the duration and global response to the tariffs, as well as their impact on inflation and interest rates.
Given this unpredictability, our best tool for risk management is our investment process, which focuses on buying quality businesses with durable competitive advantages and strong financial strength. These businesses can endure economic shocks and emerge stronger. Market sell-offs often provide opportunities to buy high-quality businesses at steep discounts. Currently, the fund has around 8.5% in cash, ready to be deployed into good opportunities.
[00:03:56] Amongst all of this noise, we also had the February reporting season. Is there a company or an announcement that popped up during that time that you think went unnoticed that you can tell us about?
Joyce Corporation stood out this reporting season. Despite being a small $140 million business, its 51% holding in KWB, a leader in the kitchen renovation market, is impressive. Although profit before interest and tax declined by 6% year-on-year, this is notable given the weak consumer backdrop. KWB has shown resilience, with January sales up 9% year-on-year. Joyce Corporation has a strong balance sheet, a capital-light model, and a high return on invested capital. The company is poised for growth, with plans to double its showroom count. The valuation of KWB alone exceeds Joyce's market cap, making it an exciting holding in the fund.
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