What’s the next megatrend?

HCP Focus is a highly concentrated equity investment strategy. There are only 12 different company shares in the fund’s portfolio. An even more concentrated strategy is used by Alphinox Top 8, which, as the name suggests, has shares of eight companies.

According to Harvard’s Best Ideas paper (Antón, Cohen & Polk, 2020), portfolio managers who concentrate investments only on their best ideas instead of wide diversification have reached 2.8-4.5% annual excess returns.

So why doesn’t everyone invest by concentrating? We sat down with Alphinox‘s Julia Bistrova and discussed the features of concentrated equity investing, our investment processes, where we think the next best ideas can be found and much more. You can find the video and its topics below.

0:00 Intro
2:12 How does Alphinox select companies to the concentrated Top 8 portfolio?
4:12 How does HCP select companies in the Focus portfolio
7:01 Current megatrends and how they can be applied to investing
8:56 Asset light vs. capital intensive businesses
9:19 Green technology and platform trends
9:56 Has Amazon lost its attractiveness?
10:25 Regulatory risk in investing
11:17 AI as a megatrend: Microsoft, Alphabet, NVIDIA, Meta
13:35 How risky is a portfolio consisting of just 8 stocks?
15:15 How long is stock holding period in HCP Focus portfolio?
16:26 Approaches to deal with biases when investing
21:26 How safe is the Chinese equity market?
22:36 Interesting portfolio holdings

The HCP Focus fund is open for investments until the end of June. HedgeNordic has ranked the fund as the best performer for the year! The minimum for the first investment in the fund is 5,000 euros and for additional investments 1,000 euros. If you have Finnish, Swedish, Norwegian or Danish person ID, you can make the subscription conveniently by subscribing online. In other cases please send a filled subsciption pdf file together with a copy of your ID to shareholderservicing@hcp.fi to make a subscription.

Best wishes,
Pasi Havia
HCP Focus portfolio manager

Book a virtual meeting Make a subscription

Rightmove lubricates the UK housing market

(Please note that this is automatic translation from a Finnish language)

The portfolio of the HCP Focus fund underwent a change of company in the first quarter of the year. We sold the longest holding ever, Amazon, out of the portfolio. It was in the fund for more than a decade, since the foundation of the fund.

We consider Amazon to have matured as a company so that the time of its most attractive growth potential is behind us. The “winner-takes-it-all” theme is an essential part of the strategy of the HCP Focus fund. In recent years, regulators have also woken up to the problem of the supremacy of technology companies, which arises from the same theme. This has brought new risks to the largest technology companies, including Amazon.

The fund’s new portfolio company is also the superior market leader in its own region. There, too, the idea that the winner takes it all comes true. It is considerably smaller than Amazon and has more runway for growth ahead. Next, we present this interesting platform company from the UK.

The UK’s leading housing market platform company

The quickest way for a Finnish investor to catch up on what Rightmove is doing is to think about the Etuovi and Oikotie services. Rightmove offers services to parties involved in rental brokerage and housing transactions. The company has a crushing 85% market share in the UK.

On Rightmove’s portal, you can find offers for rental apartments, owner-occupied apartments and commercial properties, as well as for many other countries in addition to the UK today. In addition, the service provides information on the state and trends of the housing market. The House Price Index maintained by the company is the UK’s most accurate predictive housing price indicator. You can also do a price evaluation of your own apartment through the service, as well as apply for a mortgage.

The company can be said to be one of the key elements of the UK housing market, where almost every Brit goes when looking for a new property or renting out their own apartment. Rightmove has managed to take the best place in the industry with successful branding, being one of the first operators and continuous product development.


A delicious business model

Rightmove’s customers pay subscription fees, which are the company’s main source of income. In particular, real estate brokerage companies are its important customers. Rightmove also charges for additional visibility, sells advertising space on the portal, sells the housing market information it collects to brokers, insurance companies, mortgage lenders and local authorities, and receives a commission for completed mortgage applications and arranged house price estimates through it.

Distribution of the company’s revenue. Source: Annual Report 2022

Almost three quarters of Rightmove’s turnover comes from real estate agents. The company’s second largest segment is New Homes, which practically means the new production of apartments. In the past, when the housing market was hot, developers were able to sell new properties quickly without help. The quiet market has recently caused developers of new properties to resort to Rightmove’s help to an ever-increasing extent, when the properties need wider visibility to help sales, which used to happen on their own.

Rightmove’s business is not as cyclically sensitive as the housing market. The broker may do worse during the quiet period, but you still have to pay Rightmove for the apartments on the list if you want to keep them on display. Since Rightmove is the overwhelming market leader, there really isn’t any other option. In fact, the bigger the inventory of unsold and unrented that brokers have, the better for Rightmove. On the other hand, when the market is pulling, high inventory turnover is also good. Only when the situation gets so bad that brokers are forced to cancel does the state of the housing market begin to be reflected in Rightmove in the form of a larger decrease in customer numbers.

Rightmove’s description of the company’s network effects

Rightmove is a platform company that benefits from network effects. In that sense, its business is simple to understand. The more paying users the platform has and the more payments can be collected from them, the better for Rightmove. When both grow at the same time, the effect is expotential.

Average monthly revenue for advertisers in the Agency + New Home segments


Number of paying customers of Agency + New Home segments

In recent years, there has been no significant development in the number of the company’s paying customers. It has remained quite stable. On the other hand, there has been considerable progress regarding the monthly fees charged. The company has been able to increase average monthly charges by more than 30% over the past four years. Last year, the average customer paid Rightmove £1,314 a month.

The company’s competitive advantage is said a lot by the fact that, although many brokers consider Rightmove’s monthly charge high and the grumbling about it can be read on the Internet, the company has been able to systematically increase the platform’s fees almost year after year. Mostly, the corona year 2020 can be seen as an exception that confirms the rule. At that time, the company gave discounts to real estate agents in order to keep even smaller customers.

Rightmove is a financially strong company. It is debt-free. The company has a strong ability to generate large amounts of cash through its business operations, which is explained by its business model. Margins are tight, which is also reflected in the company’s balance sheet.


Downwind of megatrends

The company’s network effects or good business model alone are not a basis for the HCP Focus fund’s investment decision. In order for the company to be able to take advantage of these, there are also growing megatrends that will ultimately enable successful growth. “Riding” megatrends also gives a natural tailwind to business and makes almost everything a little easier than the setting sun in industries.

The most obvious megatrend in Rightmove’s case is digitalization. Digitization has helped Rightmove gain popularity in the rental and housing markets. Today, more than 95% of home seekers use real estate portals, and for good reason: internet real estate agents have brought real estate brokerage costs down considerably. The portals also make searching and applying for suitable housing options both more efficient and easier. Thanks to digitization, real estate portals can now also be found in everyone’s pocket – on a mobile device. Rightmove also has its own mobile application, which the company is actively developing. In fact, more than 70% of the platform’s visitors last year were users of Rightmove’s application or mobile-optimized page.

Another strong megatrend is urbanization and demographic change. People’s desire to move to cities helps real estate portals like Rightmove to increase their customer base, when the competition in a centralized area intensifies and the benefit of real estate portals increases in the same context. More and more people live alone these days and the structure of the population is getting older, making city living and the acquisition of studio apartments more desirable. This has partly led to the growth of the rental market, from which real estate portals benefit greatly.


New CEO and committed staff

All Rightmove personnel own company shares. If we are precise, then more than 99% of the personnel are company owners. In December 2022, Rightmove introduced the SIP (Share Intensive Plan) reward model, in connection with which each employee received 500 company shares. It is possible for every employee of the company to join SIP.

In addition, Rightmove uses a voluntary model called SAYE (Save As You Earn Scheme – Sharesave) to engage personnel. As the name suggests, in this model, the employee can save from his own salary for the company’s options, which entitle him to acquire shares up to 20% below the current market price, which was when the employee joined the model. Options must be held for at least three years, after which the shares can be sold and taxes paid on them. If the options are held for more than five years, the shares can be sold tax-free. Every employee of the company is entitled to join the savings model. At the end of 2022, more than 68% of Rightmove’s personnel saved SAYE from their own salary.

We like Rightmove’s way of making employees part of the company’s owners. It also resembles our HCP operating model, where every permanent employee is also a shareholder. Committed, motivated and satisfied personnel are an important part of the company’s success. According to the staff satisfaction survey, 87% of employees think that Rightmove is an excellent place to work.

Rightmove got a new CEO in March. The previous CEO, Peter Brooks-Johnson, worked at Rightmove for 17 years. Peter served as COO since 2013 and as CEO for the last six years.

The new CEO, Johan Svanström, came from outside the real estate industry. Before joining Rightmove, this Swede worked at the EQT Partners investment company and has a long experience at Expedia, where he was responsible for e.g. the Hotels.com brand. Svanström has good experience working on the board of various companies and has sat on the board of Wolt and now Rightmove, for example.

At Expedia, Svanström was one of the company’s first employees in Asia, where he led the establishment of the company’s operations on the continent. He joined Expedia after McDonald’s, where he led several successful large projects in the company’s digital innovation group, and previously held CEO and leadership positions in several telecommunications and internet startups. Johan has several years of experience as a board member of public and private technology companies in several countries.

In the HCP Focus portfolio management team, we have a positive attitude towards the CEO change. We believe that Johan will be able to renew and develop Rightmove with fresh views from the technology sector and digitization. The coming years will naturally show how well he succeeds in the task, but we think the background is excellent and believable, so that all the ingredients are there.



No share investment is without risk, and Rightmove is no exception. Although we like the company and see its future as bright, many things can still go wrong. There are clearly identifiable risks associated with Rightmove as well, which we keep an eye on.

First of all, although Rightmove has started to offer its services to other parts of Europe, the United States, Turkey and Thailand, the company is currently very dependent on the UK. The kind of economic situation in the UK has an effect on consumer confidence and behavior, which is reflected in trading volumes and thus also ultimately in the company. Although we believe the company’s business can tolerate changes in the UK real estate market reasonably well, it is by no means immune to it.

Real estate markets are competitive. The barriers to entry into the industry are low and the margins are good, which can attract new innovative players or tighten competition for platforms that are already operating. Rightmove’s biggest advantage by far is its clear market leadership. Although other platforms can have bloody competition with each other, Rightmove’s platform is almost a must, because that is where the majority of consumers head. Losing market leadership would have far-reaching effects, starting with the company’s pricing ability.

The rapid change in technology can affect Rightmove. The company must invest in product development and introduce new technologies to remain competitive. The way consumers search for information may be different in the future and the industry’s business model may change. A disruptive actor can surprisingly quickly destroy Rightmove’s business if the company is unable to stay on top of the wave.

Due to the company’s business, it is highly dependent on various IT systems and information security. Cyber-attacks can render the platform unusable and a data breach can endanger the safety of users. At worst, a breach of security can lead to a complete loss of trust in the company, which could bring down its business very quickly. Rightmove must be able to keep its platform and back-end systems operational, which requires continuous investment.

The company’s success depends on the right kind of competent personnel. In this regard, the company has recovered excellently over the past year and is currently one of its smaller risks. If the share price dives and the means of commitment stop working, Rightmove must be able to react in order to keep hold of competent staff. Any internal problems, such as if staff turnover were to increase significantly or administrative errors would occur, would all have an impact on the company’s business.

In addition to these, there are naturally also numerous unrecognized risks that can unexpectedly affect the company.



Rightmove is by far the UK’s leading housing market platform company. It benefits from network effects and makes a good profit with a high margin. The company is debt-free and its personnel is strongly committed to operations. At best, the new CEO can act as a catalyst for the company’s renewal. The megatrends of digitization and urbanization, as well as demographic change, give a tailwind to business. Regarding the valuation of the company, we rely heavily on the EVA model in the portfolio management team of the HCP Focus fund, which also supports the investment decision.

This kind of a company is Rightmove, the latest entrant to the HCP Focus fund.

Pasi Havia
Portfolio manager of the HCP Focus fund


This article is intended to introduce Rightmove in a general way to clients of the HCP Focus fund. This is not an in-depth analysis, nor is it intended to be. At HCP, we have separately produced analyzes of the company for internal use to support the investment decision.

HCP Bricks – L3 Warehouse, a loft dream by the sea!

At the end of 2022, we were finally able to publish our first project in progress. L3-Warehouse is a unique development project in Jätkäsaari, Helsinki. The Helsinki City Council approved the sale of the L3 warehouse, which removed the last political risk of the development project and enabled the project to move forward 100%.

Now a delicious phase begins in the project, which we have been waiting for a long time. We get to offer future tenants loft offices, the popularity of which has been growing explosively over the past few years. Today, many companies are looking for so-called neo-loft offices, which are built to be energy efficient using modern construction techniques.

Although there are many vacant offices in the capital region, there are not enough trendy loft offices on the market for everyone, and searching for your own perfect loft office can seem like a difficult process. L3 warehouses have certain loft characteristics, which make them more desirable and unique than ordinary offices. The unique features of the L3 warehouse are the openness of the premises, a higher than normal room height and a factory-like milieu, where the raw, gritty concrete surface is emphasized.

The L3 warehouse and the seaside in Jätkäsaari are part of cultural heritage, landscape and people’s memories. To the former storage building designed by Lars Sonck is coming, for example, restaurants, loft offices and showrooms on four floors.

The renovation is expected to start at the end of this year and be completed in 2024, when the building turns 100 years old. Before that, tenant negotiations and planning will continue. All this in order to ensure a profitable investment and controlled risk.

The year 2023 will be interesting. It is expected to be a turn for the better, but it is uncertain how quickly the turn will happen or whether we will have to wait until next year. This means an opportunity to acquire interesting objects for us at an affordable price. The time to invest is now, if the buying window remains short. If the recession remains short or non-existent, inflation returns to normal and the interest rate stabilizes, we can see a rapid market recovery in real estate.

You can now get to know the future premises of L3-Warehouse through the observation photos above and on the renewed website L3Makasiini.fi.

Video interview with Pasi Havia

HCP Quant’s fund manager Pasi Havia was interviewed by French investor Rémi de Truchis de Varennes. Year 2021 HCP Quant was the best performing small- and mid-cap fund in the world rated by Citywire. What are investment criterias behind HCP Quant? Do private investors have any edge against fund managers? What are those?

Answers to these questions and much more you’ll find from the video below. Interview is in English and has French subtitles as well.

Access to a closed market – Hello World!

This year is exciting for us! After long hours of heavy research and development we are finally ready to launch our newest fund called HCP Bricks. HCP Bricks is a real estate developement fund and it is a joint effort between HCP and Cobbleyard. We believe that Cobbleyard’s experience with property asset management and HCP’s experience with mutual fund investment management is the perfect fit.

An alternative investment fund (AIF) structure is a brilliant way to pool smaller investments together to gain access to the market which is not accessibly alone. HCP Bricks will invest in large commercial properties in city centers. These properties are technically complex and require special knowledge of the tenants. Luckily we have a successful long proven track record that we can manage these properties combined with the HCP’s family of funds proven track record of the award winning funds.

We are happy to open this market for you! Welcome aboard to HCP Bricks.


Climbing the Risk-Return Curve

Tommi Kemppainen

Tommi Kemppainen, HCP Black Portfolio Manager

Stockholm (HedgeNordic) – As part of its allocation process, multi-asset, multi-strategy hedge fund HCP Black has always been invested in real estate, primarily either through listed real estate investment companies or exchange-traded funds (ETFs). Tommi Kemppainen, the CEO of Finnish asset manager Helsinki Capital Partners and portfolio manager of HCP Black, now plans to climb the risk-return curve by investing in a value-add real estate fund.

“HCP Black has invested and diversified into the global real estate market throughout the entire life of the fund,” writes Kemppainen in a blog post. “Real estate is particularly relevant now, as an aggressive increase in the amount of money has undermined confidence in the ability of money to maintain purchasing power,” he continues. “Real assets such as real estate are then needed to maintain purchasing power.”

“HCP Black has invested and diversified into the global real estate market throughout the entire life of the fund.”

HCP Black currently allocates about 11 percent of its portfolio to real estate, with five percent invested in a well-diversified real estate portfolio via a global real estate fund and the remaining six percent in tactically acquired Spanish real estate via a local listed real estate company. Kemppainen plans to sell the traditional real estate investment amounting to five percent of the portfolio in the second half of 2021 and invest the proceeds in more select properties via a fund. “This is real estate, like a traditional real estate investment, that typically provides good protection against inflation,” explains Kemppainen. “The main focus is on the specifically selected properties and where active property management can create value added.”

“The amount of so-called idiosyncratic risk in HCP Black Fund’s real estate investments increases in proportion to the amount of market risk in the asset class itself,” writes Kemppainen. With the soon-to-be-made investment in a value-add real estate fund, “we will thus be able to further increase the return potential of the HCP Black Fund in relation to the total risk incurred,” the CEO adds. “HCP Black is once again taking a step forward as an active strategy as the focus within the real estate capital class also shifts from a passive market investment to more active real estate management.”

“HCP Black is once again taking a step forward as an active strategy as the focus within the real estate capital class also shifts from a passive market investment to more active real estate management.”

HCP Black is one of the three vehicles under the umbrella of Helsinki Capital Partners, with the fund employing active diversification across a wide range of non-correlated alternative and traditional assets. At the halfway point of the year, the multi-asset, multi-strategy fund allocated about 20 percent of its portfolio to insurance-linked securities, 14 percent to trend-following strategies, 12 percent to fixed-income investments and 11 percent to real estate. The remaining assets were allocated to gold, silver, the firm’s other two vehicles, and tail hedge securities. HCP Black gained 9.8 percent in the first seven months of 2021 and has generated an annualized return of four percent since launching in late 2009 with single digit volatility.


HCP Quant 2/2021 +11.02% | Value stocks came back with a bang

The rotation to value stocks continued in February, which was also reflected in the substantial growth of the HCP Quant Fund. HCP Quant returned +11.02% during the month. The benchmark index MSCI ACWI SMID Value Total Return also grew by +6.60% in euros. The United States’ S&P 500 Total Return Index, which measures the development of large-cap equities, returned +3.20%, and the European equivalent S&P Europe 350 +2.73%.

In hindsight, it is easy to pinpoint the catalyst that changed the markets to favor value stocks again. It was the long-awaited news about an effective corona vaccine. Pfizer was the first to announce the news in early November, and since then HCP Quant has returned 34%.

The stock market tends to price in events around six months into the future. Value stocks’ “relief rally” is happening because investors have begun to look at the time after corona vaccination. A return to the norm. Many of the hardest-hit stocks have been the biggest gainers of the new cycle. Even after the recent surge, many of them are still valued very low, and when compared to their average historical valuations, there is still plenty of room to grow. If the rotation is here to stay, it means better times for value investors. And it will also greatly benefit HCP Quant.

There are also a number of factors that could cause an early end for the rotation. At the current pace of vaccinations, in most countries, we are still many months away from returning to normal life and as such, the turn in favor of value stocks may have begun too early. In this case, we might still be facing bumps in the road until the timeline gets clear. On the other hand, the valuations were very low, to begin with.

The other large risk factor to the new rotation is the actions of central banks, as they have the difficult task of balancing sufficient inflation, interest rates, and the revival of the economy. Low interest rates and high levels of quantitative easing favor growth stocks, whereas higher inflation and interest rates favor value stocks. Interest rates turning higher has been supporting value stocks recently. Yesterday the President of the United States Joe Biden signed a record-breaking 1.9 trillion-dollar COVID relief bill. While stimulus funds like this mainly support growth stocks, there is a limit to how much new money can be pushed into the system without causing uncontrollable inflation.

In other words, there are some dark clouds looming over both growth and value stocks. If previously investor’s portfolio has had a focus on growth stocks, now might finally be time to allocate some of it into value stocks. Similarly, those who are “all-in” on value stocks could benefit from also holding a portion of growth stocks, as even if the rotation has begun, we are still in its early phases and a lot can still happen.

The relative earnings of stocks in developed markets, divided by market cap and valuation. 6/2018 – 8/2020.
Source: David Blitz

The past couple of years have been a strange time for investors. There have been many ways to underperform, but there has really only been one way to outperform: mega-cap growth stocks. What makes this so extraordinary, is that typically excess returns are spread among a number of factors, whereas in recent years there has essentially been only one way to do it. By investing in the largest growth stocks.

David Blitz from Robeco Quantitative Investments wrote about the returns of these different factors in his research paper: The Quant Crisis of 2018-2020: Cornered by Big Growth. Blitz covers the traditional academic factors: size (small-minus-big, SMB), value (high-minus-low, HML), investment (conservative-minus-aggressive, CMA), profitability (robust-minus-weak, RMW), and momentum (winners-minus-losers, WML). Without the momentum factor, the rest of the factors combined made a loss during the past decade.

In the end, Blitz concludes:

“We examined the performance of factor strategies during the Quant Crisis of 2018-2020. Our main finding is that there was basically only one way to outperform during this period, namely by investing in the largest and most expensive growth stocks. Mega-caps with the strongest profitability and momentum characteristics also outperformed, but we find that this is due to their sizable implicit exposure to the same large growth stocks. Moreover, profitability was only effective in the mega-cap space conditional on having a strong growth tilt. Smaller stock portfolios underperformed across the board. Thus, there were numerous ways to fail during the 2018-2020 period, but essentially only one way to succeed.

“In fact, Arnott et al. (2020) and Blitz and Hanauer (2021) have observed that the recent underperformance of the value factor is primarily driven by an extreme multiple expansion of growth stocks which appears unsustainable and bound to mean-revert, at some point. In other words, instead of having been arbitraged away, the value factor has experienced an increase in its expected return to a level well above its historical average.

The valuation multiples of growth stocks have been stretched to unsustainable levels, and correspondingly, the expected earnings of value stocks are considerably higher than historical means.

Value investing isn’t dead after all, even though many had already accepted its passing.

As a reminder, HCP’s funds are accepting subscriptions during the month of March. You can make a subscription electronically by pressing the button below.

Best regards,
Pasi Havia
HCP Quant Portfolio Manager

Book a virtual meeting Make a subscription

“The single greatest edge an investor can have is a long term orientation.”
Seth Klarman

Huya – Gaming is the gold rush of the digital age

Gaming is the gold rush of the digital age

The popularity of gaming has grown immensely. It was not long after the creation of the first computer, that the first computer games were also born. Ever since, the advancements in the gaming industry have been astonishing. Games have evolved from moving around a few clumsy pixels to ultrarealistic experiences involving real-time interaction with other players.

Games have evolved, but so has the entire culture surrounding gaming. It wasn’t long ago that society considered playing video games to be a complete waste of time. However, over time it has become more socially acceptable, and nowadays gaming is popular among all ages.

At the same time gaming has also become increasingly professionalized. Nowadays, talented gamers can potentially earn millions of euros over the span of their careers and E-sports have even surpassed many traditional sports in viewership.

Gaming isn’t going anywhere. We believe it will continue to grow even further. Younger generations are playing more than the previous ones, and nowadays gaming is considered a normal part of life even as we grow older. Young people today will continue to be gamers even in retirement.

Gaming has staggering growth figures. Due to its growth in popularity, we also see increasingly large sums of money in the industry. From an investor’s perspective, this phenomenon is somewhat reminiscent of the gold rush in the 1800s. As an investment, gaming companies are a bit like gold miners, we can’t know for certain whether their future games will be successful, much like how we can’t know whether the miner heading to Klondike will find gold.

Finding enormous success through a single game is comparable to a miner’s pickaxe hitting a gold vein (Rovio’s “Angry Birds”). The risk is high, but so is the potential reward. We can of course reduce this risk through acquiring a larger game company (Nintendo, Tencent, Activision, Blizzard) or through acquiring a handful of different game companies.

However, gold miners weren’t the biggest winners of the goldrush, although some of them got lucky. The ones who actually gained the most were the hardware merchants who sold pans, pickaxes, hammers, and nails to miners with gold fever.

In the HCP Focus Portfolio Management team, we’ve been watching the industry from this perspective. We haven’t been interested in stand-alone game companies, due to their unpredictable nature. Instead, we’ve been searching for the greatest hardware merchant in all of Klondike. Firms like these can benefit more widely from the impact of the gaming megatrend. We’ve considered the hardware merchants to be firms providing gaming infrastructure, widely used game engines, technology, and so on.

After careful consideration, we have decided to invest in China’s leading live game streaming platform: Huya.


Huya Inc

Huya was born in 2014 when YY.com’s video streaming service began operating independently. It was listed on the New York Stock Exchange in 2018. Huya is China’s leading live game streaming platform, that allows streamers and viewers to interact during the broadcast. The content provided on Huya consists of mobile, PC, and console games, as well as a few non-gaming-related categories. In South-East Asia and Latin America, Huya’s platform goes by the name Nimo TV, and it covers roughly 4000 games.

In the West, the equivalent market leader of live streaming is Twitch. It was acquired by Amazon in 2014 for 970 million dollars – at the time it had 55 million monthly active users (MAU). From today’s point of view, the price seems extremely cheap. HCP Focus is invested in Amazon, thus by taking a positing in Huya, our game streaming ownership has grown to cover South-East Asia, China, the Americas, and the rest of the West.

Huya’s primary revenue source is its live stream earnings (Q3/2020 94.4% of revenue), which mainly consists of the money that paying users choose to spend on the platform. Over the past three years, the number of monthly average users and the number of paying users per quarter have both doubled. Based on the latest reported quarter, Huya’s MAU was 172.9 million and its number of paying users was 6 million. The remaining portion of Huya’s revenue comes from advertising.

The company’s revenue has grown almost fivefold in the same time span, to 2.8 billion yuan (414.6 million US dollars) quarterly. Huya’s revenue growth was around one hundred percent mark in 2018 and 2019, but it has slowed down since to 24.3% in the latest quarter.

The slowing growth isn’t a cause for concern, as the starting point was quite low and the gross margin has experienced clear growth, now being at 22%. Huya is successfully utilizing its growing user base for improved results. In comparison, their main competitor in the Chinese market: DouYu, has a considerably lower gross margin of 14.5%. Assuming that China’s competition authority will act favorably towards Huya, the company could soon experience new explosive growth, which could easily lead to improved margins as well.


Winner takes all – through a merger or without

Last October Huya announced the plans to merge with its main competitor DouYu. Huya’s largest stakeholder Tencent also owns a part of DouYu. Besides the merger, Tencent would also sell its game streaming service Penguin eSports to DouYu—which is fourth biggest in the Chinese market— for 500 million dollars.

To summarize the Chinese market players: Huya is #1, DouYu #2, and Penguin eSports #4. Huya and DouYu alone have 80% of the market share, so the new Huya would take over the entire Chinese market.

The merger has Tencent’s full support, so internal conflicts are unlikely to come in the way. However, whether the merger will happen, is largely reliant on China’s competition authorities. The deal is expected to be finished during the first half of the year.

It’s clear that there are many synergies that would follow from the merger. Huya’s platform is very scalable, so the addition of new users won’t cause a problem. MAU of the new company would be approximately 400 million, although there are overlaps among the user bases of all three platforms. The larger user base would ease generating more advertising income and allow for improved scalability of servers and bandwidth, as well as better monetization for streamers.

Tencent is the largest video game publisher in the world. China is the largest market for videogames. Gaming is very popular in Asia, far surpassing the West. The merger would allow Tencent great access to streamers and viewers alike, which they would certainly utilize for promoting games and e-sport tournaments.

All of this would improve Huya’s operations and their bottom line. The new company would be an 11 billion dollar giant in the game streaming industry. Currently, Huya’s market cap is around 6.2 billion dollars and DouYu’s around 4.6 billion. The new Huya would be significantly larger, more efficient and it would have almost no competition. Huya’s brand would get even stronger and it would essentially become China’s official video game streaming platform. A natural monopoly with the capabilities to further improve its position in the rest of Asia and Latin America as well.

The merger and its benefits look good, but it is by no means certain. It’s evident that in case the merger fails, Huya’s stock price will fall in the short term, and likewise, if the merger succeeds the stock has a lot of room to grow. We think it is justified for HCP Focus to carry the risk of a potential failed merger, as we consider Huya to be a solid investment in the long term as is. We are not making this investment shortsightedly. Instead, we are following our strategy of looking past cyclical changes and considering the longer-term megatrends at play. Huya is the market leader even without the merger, and it is positioned outstandingly in a high-growth industry.


Game streaming is a part of the platform economy

Most of HCP Focus Fund’s holdings are platform companies. For example, our previous investment Fiverr, Shopify, Etsy, Match Group, Amazon, MercadoLibre and so on. Now Huya joins the list as the latest addition.

We like platform companies. Their businesses scale very well. Arimatti Alhanko discusses the advantages of platform companies compared to more traditional business models in Finnish article Platforms Rule. Platform companies connect the business to the users, which enables the direct exchange of values between them. For a traditional linear business, getting one new customer creates only one new connection, whereas, for a platform company a new customer also creates a new connection with all existing customers. This nature of the business model is highly beneficial for both the company and the end-user.

On Huya’s platform, the connection is created between the streamer and the viewers. A streamer could be an individual or even a e-sports tournament with commentators, like in traditional sports. Streamers get a share of the revenue from paying viewers and advertising. Nowadays, popular streamers are considered celebrities, and their income can be in the millions. This creates a mutually beneficial arrangement, where viewers can consume high-quality content, and Huya gets compensated for enabling everything as a platform.

According to the book Modern Monopolies – How Online Platforms Rule the World by Controlling the Means of Connection by Alex Moazed and Nicholas L. Johnson, in a few decades half of the S&P 500 companies’ output will come from the platform economy. We are seeing that the world is moving in this direction. The world’s largest provider of accommodation (AirBnB) doesn’t own a single hotel room, the largest ride-hailing companies (Uber, Lyft, Bolt) don’t own any taxis and the largest food services (DoorDash, Uber Eats, Grubhub) don’t own any restaurants.


Summa summarum

Huya checks all boxes of the HCP Focus investment process. The underlying driving force is the growth of gaming and the subsequent development of the e-sports and game streaming megatrend, which we believe will continue to increase in popularity for a long time.

Huya is a platform company and the clear leader of its own market in China. According to the “winner-takes-it-all” philosophy, the winner will get a disproportionally large share of the market. Huya already has a majority share of the market, and if the merger is successful, it will take over the rest as well. As a platform company, Huya has a significant network effects.

The stock is reasonably priced, although as it is a Chinese company, more conservative valuation multiples are justified. However, considering Huya’s growth metrics, with its forward P/E ratio being around 30, its valuation is very favorable compared to many other holdings in the HCP Focus portfolio.

The primary valuation tool we use for HCP Focus investments is the EVA-method. Using EVA, Huya’s quality and valuation are both very attractive.

Best regards,
Pasi Havia
HCP Focus Portfolio Manager


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HCP Quant 1/2021 +3.59% | The Rise and Fall of WSB?

January was favorable for HCP Quant, and the cycle supporting value stocks continued. The first few months of the year tend to also favor smaller companies, this phenomenon is known as the January Effect. Be it the January Effect, the emergence of the new cycle supporting value stocks, or a combination of both, it has delivered a long-awaited gust of wind to the sails of HCP Quant. While writing this, February has also had a strong start, with the fund nearing +20% returns for the start of the year.

But let’s return to January for a bit. HCP Quant returned +3.59% during the month. The MSCI ACWI SMID Value Total Return benchmark index, measuring the global development of small and mid-cap companies including gross dividends, returned +1.33%. Whereas the U.S. S&P 500 Total Return index fell -0.25% in euros, and the European S&P 350 Europe Total Return index fell by -0.77%.

The Reddit group Wall Street Bets (WSB) and its recent endeavors have gained a great deal of attention. Countless media outlets have already covered the topic, so I won’t initialize the matter thoroughly.

There have been a great variety of factors including conflicting interests, goals, ideologies, feelings, memes, humor, timing, and even cult mentality, which all contributed to the conditions that led to the events of the past weeks. WSB is by no means just a homogeneous group. I will simplify matters to present one aspect of the situation with Wall Street, the “nemesis” of WSB.

As we continue to live in the midst of a pandemic, normal life is limited and people are holed up in their homes. These circumstances create the perfect environment for an online community like WSB to thrive. When we combine the financial troubles caused by the pandemic, with young age, frustration with the current financial system (which is evident from the popularity of Bitcoin among young people, the widespread distrust of fiat currencies, and the attitude that Wall Street works against the common person), the stimulus checks in the USA, record cheap leverage, increased free-time, the relatively new convenience of buying shares (Robinhood application), inexperienced investors, and sprinkle on top some underground meme humor, the soup is ready to be served.

A company selling video games primarily in shopping centers, GameStop (GME) became one of the many targets of the WSB community. The original investment thesis was actually sound, but later the whole initiative took an unforeseen turn. GameStop has been struggling for some time now due to video game sales largely moving to online platforms, and more recently due to the pandemic closing shopping centers, causing GameStop to lose their customers. Many Wall Street hedge funds started smelling blood in the water and began short selling the stock aggressively, expecting GameStop’s problems to continue and the stock to keep falling.

One member of the WSB community, Keith Gill, bought call options for GameStop in 2019. Famous investor Michael Burry (“Big Short”, Scion Capital) bought GameStop shares the same year. Both of them thought that the stock was clearly undervalued. At this point, the investment was well justified, and Keith Gill continued to actively share his views and bank statements on the developments of the investment to the WSB community.

Earlier this year on the 22nd of January, the shorted shares of GameStop had grown to 140%. It was at this point that the WSB community saw an opportunity. The stock was undervalued, and the aggressive shorting by hedge funds could create an opportunity for a short squeeze with a great pay-off. For this to be possible, a large enough group of WSB users would have to work together, and so they did. The group now had over a million members, it was certainly large enough.

While initially, the basis for the investment was good, but as the stock rose wildly in a matter of days, it quickly became an absurd game of hot potato where people were just trying to pass the stock onto the next “player” (Greater Fool theory). The company’s share price became very disconnected from reality and fundamentals. In just a few days, the GameStop stock rose from 20 dollars to an unbelievable high-point of 480 dollars.

The large influence of WSB gained wider recognition as the media began reporting the story, which then inspired even more people to join the group, causing it to multiply manyfold in a short period of time. This rise in members was also necessary for maintaining the share price and making it rise even higher. At the same time, a common enemy had been established, making the act of dumping money into a wildly overpriced stock seemed ideologically justified to many (This is for you, Dad).

The common enemy in question was the hedge funds that had been short selling the stock. Many WSB users were prepared to buy GME stock and hold on to it (“HODL”, “Hold the line”, etc.) regardless of potential losses. For them, it was more important to see the hedge funds lose and hopefully even drive them to bankruptcy. The WSB community had power, and they were drunk of the realization that they could actually affect markets. The sentiment among the members seemed to be along the lines of “Let the Wall Street bankers cry, we have the power now! We will revenge the injustice!”.

They wanted to send Wall Street a message. It was no longer about GameStop being undervalued. GameStop had become a pawn in the game WSB was using to get back at Wall Street. The power of a large group is captivating. The feeling of being part of something greater is empowering, and if on the side it can also makes you some money, even better!

Ultimately, WSB wasn’t able to see it through quite this far. Did Wall Street really receive the message that WSB wanted them to get? I don’t think so. In the end, it was just a case of failed risk management. Risk management has failed investors countless times throughout history. When the risk management of LTCM’s PhDs failed in 1998, they needed 14 banks to save the day. During the financial crisis, banks were falling like dominoes as the subprime risks were realized. This time it’s a few hedge funds. But what did they and Wall Street learn from this? They learned that their models didn’t include sufficient risk of a short squeeze. The fact that the squeeze was orchestrated by a group of angry young people doesn’t change anything. Certainly, many hedge funds will have learned from this, and they will update their risk assessments to better consider these kinds of factors in the future.

While WSB was able to hurt a few hedge funds through the fall of their risk management, they also hurt themselves in the process. The Robinhood application is a very popular platform for making investments among WSB users. During the most hectic trading hours, even Robinhood’s own risk management gave in. WSB investors were lining up to invest borrowed money into highly risky derivatives through Robinhood. This led to Robinhood’s collateral requirements skyrocketing, and them having to rely on outside capital and restricting trading to avoid going bankrupt. In their attempt to hurt Wall Street, the WSB users nearly caused their own favored platform to fall as well.

Similar increases in collateral requirements also occurred on other brokerages that had significant trading activity for the select stocks that WSB was targeting. The restrictions to trading created many conspiracy theories about Wall Street working together to strike back at WSB. Naturally, this further drove the comradery within the group.


GameStop share price and trading volume. Source: Wikipedia

All good things must come to an end. WSB saw an opportunity for a short squeeze and grabbed it, the stock grew manyfold and the “Dethrone Wall Street” mentality had many people join just to hurt hedge funds. Everything seemed to be going well. Hedge funds had to realize some losses and many WSB investors made massive gains. It’s likely due to the inexperience that most didn’t consider who would be bearing the cost of all this. As the ones paying the price are in fact many of the WSB users involved. Not the hedge funds.

Short squeezes always follow the same pattern. The explosive growth is followed by the fall. When a company’s valuation gets too far from the value of the underlying business, it eventually goes back to a more justified level. GameStop has now fallen around -90% from the top. WSB investor’s risk management also failed. As a method for humor, many have changed their gloating to showcasing “loss porn”. In the end, the message they wanted to send turned out to be very costly. A boomer doesn’t pay for the kind of valuation multiples on GameStop that would make the share price hundreds of dollars.

WSB seems to be a victim of its own success. In a short time, the group was able to gain millions of users. They were able to manipulate the share prices of multiple companies (AMC Entertainment, Nokia etc.). The curiosity towards WSB grew into a phenomenon. The administrators of the group received offers to make a movie out of the events that had occurred, which caused internal conflicts. The GameStop saga ended with a large group of bitter investors condemning the market and Wall Street. When the funds have been burned, will there be enough left to move the next stock? There has to be a continuous influx of new investors to replace the fallen ones in order for something like this to continue.

In the end, I don’t think Wall Street will learn much from this. Besides adapting through adjustments to their risk models and creating systems to predict movements in the market based on the online communications of groups like WSB. However, I do hope that many individual investors learned from this saga.

Best Regards,
Pasi Havia
HCP Quant Portfolio Manager

“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.”
Benjamin Graham

HCP Focus Featured in BarclayHedge 2020 Performance Rankings

Helsinki Capital Partners’ HCP Focus fund has been featured in BarclayHedge’s performance rankings for the year 2020, reaching number 6 globally in the equity long-only category for the year (BarclayHedge Hedge Fund Yearly Rankings).

Additionally, Investment Research Finland (Suomen Sijoitustutkimus Oy) has ranked HCP Focus as the second best global equity fund in Finland by 5-, 3-, and 1-year returns (Mutual Fund Report December 2020).

The long-only equity fund, co-managed by Pasi Havia, Elias Koski, and Anthony Simola reached its best annual performance in 2020, a +58.30% return after fees, significantly outperforming the benchmark index MSCI ACWI IMI Total Return (EUR), which returned +7.22% in 2020.

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