An online retailer of government and charitable lotteries, Jumbo International, is the sort of company that attracts investors to the small companies end of the Australian Securities Exchange.
The stock is currently trading around $17 a share, compared with a price around $4.40 a year ago. Since the start of the year the price has climbed from around $8.
The company has benefited from the shift in the sale of lottery tickets to online channels. Over the past five years online sales of lottery tickets have doubled and now have a 21 per cent market share.
One fund manager that has backed Jumbo International over the past couple of years is Clime Investment Management, which holds the stock in its Clime Smaller Companies Fund.
Clime says another attraction is that there are only two players in the online lottery market, Tabcorp and Jumbo, and there are significant barriers to entry. It also likes the fact that Jumbo has plenty of cash and is in a position to undertake capital management initiatives, such as pay special dividend, which it did last month.
The Clime Smaller Companies Fund marked its two-year anniversary in April with a return of 18.1 per cent a year since inception and 14.5 per cent for the 12 months to the end of April.
Clime does not benchmark the fund’s performance against an equity market index. Rather, it aims to produce returns that are 8 per cent above the consumer price index. It is well ahead of that target for all periods.
Clime trimmed its holding in Jumbo after its recent strong run but it still rates it a core holding in its portfolio.
Other successful holdings in the fund include buy now pay later company AfterPay Touch, financial software company Bravura Solutions and investment company Navigator Global Investments.
Clime is not afraid to cut its losses. The Smaller Companies Fund sold its shares in Praemium Ltd, an investment administration and financial planning services provider, after it lost its account with ANZ Private, which accounted for 8 per cent of revenue.
In his latest market commentary, Clime’s head of investments Adrian Ezquerro says world growth, low inflation and low interest rates have combined to lift equity market and added to portfolio returns after a poor December quarter last year.
“From this point we see more of the same in terms of the macro environment, but we suspect that equity returns will slow somewhat as equity markets have work to do, such as grow corporate earnings, following such a strong rally.
“We are neither bullish nor pessimistic on the world outlook, and the rally in equity markets is explainable by the interplay of macro factors. From this point, we believe that a strong quality-focused and value-based investment approach is needed to identify and access opportunities in this world of low growth.”