Forager’s Australian Share Fund faced a significant downturn in the March quarter, caught in the “SaaSpocalypse” that saw technology stocks plummet. Investment chief Steve Johnson, who oversees the fund’s strategy, viewed this market turmoil as a prime opportunity to deploy its substantial cash reserves. Forager manages an investment fund, making strategic investments in Australian equities. The fund began the year with 20 per cent cash, awaiting a sharemarket pullback, and has since more than halved that position by actively investing.
Johnson stated Forager’s objective is not to avoid sell-offs entirely, but to maximise opportunities during them, noting “pessimism is where we thrive.” The fund strategically repurchased sports technology provider Catapult and financial services software business Bravura, which now rank as the fourth and sixth-largest holdings respectively in the $170 million Australian Share Fund. Despite these moves, the fund tumbled 19.5 per cent in the first quarter, dragging its one-year return to 1.3 per cent. Significant detractors included EML Payments, IDP Education, and ReadyTech, all experiencing sharp declines. Johnson observed that “highly correlated parts of the market… have been indiscriminately sold.”
While acknowledging that parts of the tech sector deserved a valuation correction, Johnson believes some stocks were unfairly impacted. Forager now identifies software companies based on four key characteristics to thrive amidst AI advancements: low-cost, embedded software, high switching costs, a competitive advantage outside the software, and robust short-term cash flow. TechnologyOne, Hansen Technologies, and Netwealth were cited as examples of resilient businesses. Forager also seeks companies leveraging AI for service enhancement or cost reduction. Investment platform operator Praemium, the fund’s third-largest holding, has already reduced its technology division headcount by 28 per cent. The fund’s largest holding remains payments infrastructure business Cuscal, with disinfection device maker Nanosonics second. Forager recently exited its 14-year investment in mining services provider Macmahon after a rally.
