We’ve increased our positions in Avantor (AVTR) and Farfetch (FTCH) for clients in our Opportunities strategy while selling out of positions in Guidewire (GWRE), Roku (ROKU), CrowdStrike (CRWD), and Anaplan (PLAN). We are also using strategic cash for the first time in Titan Opportunities.
We believe these moves offer our clients:
- Increased exposure to the healthcare sector;
- Increased exposure to luxury ecommerce; and
- Reduced exposure to certain software names that we believe face headwinds.
Taking care of healthcare
AVTR is a life sciences tools (LST) business that we believe may benefit from a COVID-accelerated appetite for R&D across the pharmaceutical industry. We initially purchased AVTR for Opportunities clients earlier this month.
Increasing the size of this holding increases diversification within Titan Opportunities. We believe this move could potentially dampen volatility, while offering clients exposure to the growing healthcare sector, which we believe could realize steady growth through the cycle.
Buying more FTCH
FTCH, the leading online luxury marketplace, is a position we initiated for Opportunities clients in August 2021.
We believe the market may be overreacting to temporary industry-wide headwinds, and our long-term thesis
for FTCH remains intact. We believe the risk/reward has improved for FTCH, so we’ve increased the position in our Opportunities strategy.
Softening on software
We believe the current market environment is a challenging one for software names in general, with idiosyncratic factors exacerbating moves in certain pockets of the industry.
We believe that by reducing overall exposure to these names for Opportunities clients, we may be able to better balance our portfolio and deploy capital into situations with more compelling risk/reward setups. As a result, we’ve sold out of holdings in CRWD, GWRE, ROKU, and PLAN.
A holding in Titan Opportunities since the portfolio’s inception on 8/17/2020, CRWD is a leader in the cybersecurity space. Its share price has increased 121% over the period of initial purchase through today.
While we continue to believe CrowdStrike is an excellent security software name, our work indicates that the current risk/reward setup is unfavorable. We believe the combination of a large market cap, lofty relative valuation, and lack of a near-term catalyst may contribute to selling pressure over the next couple of quarters.
A holding in Titan Opportunities since the portfolio’s inception on 8/17/2020, GWRE is a leading P&C insurance software vendor and its share price has increased by just 3% over the period of initial purchase through today.
In our view, GWRE currently provides the least amount of upside of the software companies in Opportunities. Given its underperformance since inception and our view of limited future upside, we are selling GWRE to rationalize our software exposure and increase risk-adjusted forward returns for the strategy as a whole.
A holding in Titan Opportunities since the portfolio’s inception on 8/17/2020, ROKU is the leading TV streaming platform in the U.S., and its share price has increased 58% over the period of initial purchase through today.
While we continue to believe the company could be a beneficiary of the shift to streaming TV consumption, ongoing carriage disputes and an increasingly competitive landscape have led us to lose confidence in the company’s long-term competitive position. Given this risk profile and the stock’s current valuation, we do not believe ROKU’s risk/reward setup adequately compensates investors.
Also a holding in Titan Opportunities since the portfolio’s inception on 8/17/2020, PLAN is a leading Connected Planning solution. The stock has declined by 4% over the period of initial purchase through today.
We believe the company’s most recent quarter was another example of failed execution in an environment that we believe could have benefited PLAN, given the company’s supply chain and inventory planning modules. While we believe PLAN may be an M&A target by larger competitors, the weakness in forward-looking operating metrics and corresponding price performance have led us to the decision to sell.
For the first time, we are now strategically holding cash in portfolios for clients in Titan Opportunities.
Periodically, Titan investment managers will seek to preserve client capital in an attempt to minimize downside risk by reducing equity exposure and increasing cash holdings during times of market volatility.
This allows our investment team to make opportunistic purchases when company valuations decline to attractive levels. This also includes dividends and cash held in reserve in an attempt to minimize the number of taxable events.