Ecommerce to thrive even after corona

HCP Focus fund has made particularly high return during last quarter when ecommerce, remote work and other digitalisation trends of society have received an enormous external push during covid-19-lockdown.

The profit for the quarter is +47.9%, thus reversing the loss for the first quarter of the year, while the benchmark index MSCI ACWI IMI Total Return returned +17.8%. The year-to-date profit as of 30 June 2020 is +33.2%, having exceeded the benchmark index’s return of –7.0%.

Clearly, the societal migration to online retail is not only an acute but structural change in consumption, and we expect our holdings to benefit from ecommerce growth directly through our holdings in Amazon, Alibaba, Shopify, Etsy, Facebook (through Facebook Marketplace), MercadoLibre, and Shopify, and indirectely by merchant fees and payment processing through our position in PayPal. You can read the entire analysis from HCP Focus Investor Letter Q2/2020, and below is a short grasp of it.

Intuitive Surgical

Intuitive Surgical’s flag ship product da Vinci Surgical Systems enjoys trust amongst surgeons and the company is looking to alter the next version even more towards to customer feedback. Plans for international expansion are facing challenges due to the high price of the system.

Match Group

We elected to accept shares in the transaction to separate Match Group from its parent InterActiveCorp (IAC). This will provide benefits for shareholders such as the potential elimination of a trading discount and the possibility of new Match being included in major stock indices. The shift to paid subscriptions in software and content as well as normalisation of online dating are favourable for Tinder, and advertising in the app is expected to bring revenue growth in following years.

Amazon, Alibaba and Shopify

The shift to remote work will  benefit Amazon’s and Alibaba’s cloud computing business, Amazon Web Services and Aliyun. Shopify has launched its consumer-facing shopping app Shop putting in into more direct competition with Amazon, while making its revenue more directly exposed to fluctuations in consumer spending.

In HCP Focus Investor Letters we give updates on the fund’s performance, disclose details about specific investment decisions, and highlight noteworthy changes in the fund’s portfolio companies.

HCP Focus Investor Letter Q2/2020

Subscribe to HCP Focus Investor Letter

If you wish to invest in HCP Focus, the next subscription deadline is 30th of September 2020.

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Responsibility highlights of 2019

“2019 was a year of strength and purpose for us. It showed us that we can succeed as a company even better while similarly walking a more responsible path” stated Tommi Kemppainen, our CEO, while writing his opening words for the Sustainability Report of 2019. Our mission has been to become Asset management to be proud of.™ For us, this means to be a trustworthy and altruistic financial actor in a world that needs more transparency, honesty, communality and sustainable actions.

Our Sustainability Report of 2019 is published now. In the video below, Jo Iwasaki talks about our sustainability journey. She found HCP through our B Corporation certification and worked on the implementation of corporate social responsibility at HCP and assembling the report.

We gathered some highlights of our year in terms of sustainability.

Responsibility highlights of 2019

HCP Focus was acknowledged as the best performing long-only equity hedge fund globally in the first quarter of 2019.

The core value we create for our clients is through excellent fund performance. HCP Focus hit records with cumulative 27.95% return 2019. In the beginning of 2020 we calculated that HCP Focus was probably the most consistently top-performing Equity Hedge Fund in the World. The fund’s performance has just continued to improve in the spring of 2020. HCP Focus was ranked the best performing hedge fund in the Nordics in 2020.

We reached our record profit of €447,510.

This states for 22% revenue growth from the previous year. We attained all time high of €94.6 million in assets under management. While emphasising responsibility in our actions more and more we still managed to result in more profitable business, showing that these two can co-exist.

76% of our assets under management were invested in accordance with responsible investment strategies.

We have increased the amount of responsible investments throughout years after we started to measure our impact. We use both negative and positive screening for our funds HCP Focus and HCP Black.

First ever company community meeting.

We brought together all HCP’s stakeholders that don’t necessarily meet in usual conditions – from investors to former employees and trainees, artists we collaborate with, academics and writers, as well as friends and families. The warm gathering in June 2019 was a success and reminded us of the importance of community.

We experienced great #HCPSPIRIT -projects.

10% of our costs were used towards cultural collaborations. With €60.000 as well as multiple working hours we managed to support emerging talents and engage people to meet though common interests. We supported total of 15 #HCPSPIRIT projects.

Best for Workers by B Lab – recognition.

HCP was titled as a flexible workplace with great organisational environment and culture.

HCP Sustainability Report 2019 (PDF)

In the report, you can find more about these themes and how we drive to be more sustainable. You can also find all of our previous sustainability reports here.

Below are our previous publications about being a B Corporation, supporting cultural actors and advocating for transparency.

Purpose and profit CAN go hand-in-hand – being a B Corporation

#HCPSPIRIT – Cultural work as part of existence

Transparency in asset management: kill the hidden fee bogeyman


The world changes fast and people expect more from businesses. We should see it as a wind at our back. It is an opportunity for us to improve what we do and how.
– Jo Iwasaki

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About the Author

Anette Tuomainen works as a Junior Communications Specialist at Helsinki Capital Partners as Miika Koskinen, who is responsible for marketing communications and customer experience, is finishing his journalism studies. Anette became excited about HCP for its visionary investing, responsible values and identity attached to cultural actors. From her opinion, these make HCP stand out positively in the investment services industry.

#HCPSPIRIT – Cultural work as part of existence

Soon cultural conventions will start to fill the post-corona streets. During the corona spring we ether haven’t had the same possibilities to arrange events and happening as in other years. Now is a good time to stop for a moment and look back on the collaborations we’ve made in culture, art, music and sports, which we use the #HCPSPIRIT tag for. Where did #HCPSPIRIT start, what have we done and what has it brought to us and our community?

We supported the club-kid collective House of Disappointments when participating to vogue Omniversary Ball in Amsterdam (2019). HOD wants to break gender roles and plays with self expression and accessory they create mainly by themselves from recycled materials.

It all started with empty walls

Our first grasp to cultural collaborations, that we were unaware would later take us deeper to its embrace, were when our office relocated to the Cable Factory. Cable Factory is home to a colourful scale of actors from art schools to creative offices and dance associations. As we moved into the new premises, our empty concrete walls needed something to make them less, well, stony. We had started to get to know the artists in the area and asked them for a solution. The works of artist Luca Delgado just shouted out to become seen and ended up decorating our spaces. Today, our office functions as an alternating art exhibition.

One of our first support projects was the community art work Roinasauna, which was part of the Cable Factory’s Kierrätystehdas event. The sauna toured around Helsinki and was built from recycled material brought by visitors. The event, which encourages an ecological lifestyle, resonated with our value base ​​and we wanted to enable the theme to be expressed through art.

#HCPSPIRIT has since continued to live mainly in the hands of HCP’s employees and the surrounding community. We are a teal organization, ie. a self-imposed organization, in which individual’s wholeness is central. A separate work self and leisure self are an old-fashioned perception of an individual as a part of an organisation. We want to encourage bringing one’s own personalities and interests into working life as well. Good examples of this today are individuals who value responsibility and are not afraid to bring ethical thinking into their workplace. We have ended up taking this further to its own path in #HCPSPIRIT, where we are actively involved in projects that are important to employees. Whether you are interested in art, skateboarding, arctic fishing or voguing, we want you to be a part of them through your work as well.

#HCPSPIRIT is a significant part of being a B Corporation, although our cultural collaborations started before we applied for a B Corporation certificate. B Corporations balance profit and purpose, and through the shared value we create in #HCPSPIRIT, we can be more to our community and ourselves.

In the communal atmosphere of Skeittikontti, the skate container, everyone can try skating in guidance during summers. We were involved in organizing the Concrete Jam X #HCPSPIRIT  (2019) street event and pool party, where nearly 40 skaters competed together regardless of age or gender.

Favela Funk Finlandia documentary (2018) portrayed the lively tour of rap artists Paleface, Gracias and Flam in Rio de Janeiro and São Paolo. HCP was involved in supporting a preparatory trip that sought stories from the world of favelas and rhythmic music.

Artist Luca Delgado has been closely involved in our community since 2016. Luca’s live painting at Tenho Restobar (2018) illustrated how art is created on canvas. Luca’s works also fill the walls of our Cable Factory office.

We organized the fourth Asylum techno party (2016) at Cable Factory in the boiler room basement.

Thaiboxer Kristoffer ”Krasti” Björkskog in the ring (2019), where he says he is closest to happiness and meaning of life. HCP has had the pleasure of supporting Krasti early on his promising career.

You can’t buy community

The benefit we get from cultural activities ourselves can be hard to put into numbers or words – and utility is not ourgoal. However, we have found # HCPSPIRIT to play a key role, at least in terms of employees’ freedom to express themselves, strengthening our brand identity and the stakeholder relationships we get to form.

We organized the operning party of Zodiak’s Side Step festival together with the House of Disappontments (2020). We managed to bring different people to encounter and create a communal atmosphere for the Cable Factory.

The creative environment of the Cable Factory has become a central part of our identity. Last summer we plotted with our neighbor Zodiak, Center for New Dance, and helped organise the opening event of Side Step Festival. Zodiak’s executive manager Ari Tenhula told us that the project was their first experience of business cooperation, which left the feeling of mutual value creation and the strengthened atmosphere of Cable Factory.

The collaboration made it possible to reach new audience groups – we want to bring people together and managed to attract a wider audience interested in vogue culture. Nor would we have been able to create such an extensive sideline program. HCP helped diversify the event and create a sense of communality that would not otherwise have been possible.

Ari Tenhula, Zodiak

Genuine encounters are paramount in building stakeholder relationships. We don’t carry corporate banners around or set up a tent where we will talk about our own asset management services. Traditional sponsorship is not for us, as we want to be more closely involved. It takes years of work in the cultural sector to gain a foothold. Work cannot be glued on or plainly a strategic initiative of the top management. You have to go on the terms of the scene.

Our cultural frame brings us closer to our customers. When we go on trips to greet athletes whose assets we manage, we are present, cheering for their careers. We also meet other athletes in this type of travels and we are visible in their world. We want to give more than just financial support. We want to cherish long-term and genuine relationships. We have noticed that what has formed around us is a wonderful and connected community.

The #HCPSPIRIT bus has toured Austrian Alps, Norwegian Fjords and the Copenhagen Skate Park, among others.

Surrounding community and work where you can make an impact increases the experience meaningfulness at work. In recent years, we have been awarded the Best for Workers recognition in which one of the criteria was the freedom to participate in #HCPSPIRIT projects. Our job satisfaction is top notch. The fact that we have not had much turnover in terms of permanent staff and several fixed-term workers and trainees have been left with us in some way witnesses that. At present, all of our permanent employees are also our shareholders.

Odd ones, stay together!

The value of art is immeasurable. Top sports unite us and make us all stars. Culture binds us as a nation and helps us experience meanings. The importance of environmental and ethical issues doesn’t even need to be emphasised. “Could us private sector actors help directly in building a better society?” we are thinking. We contribute through taxes, but hey, it’s pretty cool to choose exactly where the support is going to, and be involved in it yourself!

Our collaborations are often related to smaller and younger players, rising stars. We have found ourselves sort of unfit in the financial industry and it is often nice to connect with others who are walking their own path and are not afraid to do something different. #HCPSPIRIT collaborations also constantly alter the way we see the world. Also, our other actions that are perhaps atypical of the financial industry make us feel different – in a good way. We are not afraid to shake up the financial sector, that is our purpose.

We are also inspired by other private sector actors who have taken matters into their own hands. A strong value base is already a norm in business. However, we would certainly need more genuine action. We ourselves are constantly wondering what we can do to create the widest possible positive impact on the community and the world around us.

You can find more of our previous collaborations from #HCPSPIRIT pageWe can’t wait to see what we end up doing next!

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About the Author

Anette Tuomainen works as a Junior Communications Manager at Helsinki Capital Partners as Miika Koskinen, who is responsible for marketing communications and customer experience, is finishing his journalism studies. Anette became excited about HCP for its visionary investing, responsible values and identity attached to cultural actors. From her opinion, these make HCP stand out positively in the investment services industry.

Purpose and profit CAN go hand-in-hand – being a B Corporation

Being a B Corporation helps monitor responsibility

We have worked on our sustainability report of 2019 this spring under the lockdown. Reflecting our responsibility transformation throughout past years has made us think what drives us forward. Since we strive to be an Asset management to be proud of.™ we are happy about being a B Corporation as we are constantly searching for improvement. We want to do good, and with the impact assessment we go through being a B Corp has given us a great tool to take stock.

Think, Act, Measure.

As to date, we are the first and only Finnish B corporation in Finland.

B Corporation certificate is awarded to for-profit business that balance purpose and profit. B Corporations are required an impact assessment which measures their actions towards the surrounding community and world. Last year we have demonstrated that we can combine these two – create more profitable business, more return on investments for our clients and similarly increase our sustainability efforts.

Certificates can be a way of greenwashing. Performing at the bare minimum, while using them in marketing. In contrast, a good way to use B corporation certificate, in our opinion, is as an internal tool. We use it to track how much we have developed and what else is there still to be done. For value-driven companies it can be a way of pushing towards your purpose.

“B Impact Assessment gave us an opportunity to receive an outside perspective on what HCP does. This, in turn, has helped the company to discuss and promote more about our unique way of contributing to a better world.” our Investor Relations Manager Jo Iwasaki explains.

You can’t pour from an empty cup

In the year 2019 we reached our highest performance, attaining almost 100M€ in assets under management. We succeeded exceptionally in creating value for our clients through our funds. For instance, HCP Focus fund became the most consistently top-performing equity hedge fund globally, and in the spring of 2020 its success reached new highs, becoming the top performing stock fund in the world measured with 5-year return.

At the same time, we have been faithful to our commitment to sustainable organisation. A key factor that enables us to act smart is our teal organization structure. Responsibility is a companywide theme. It doesn’t tie only to management. Teal organization empowers everyone in the company to participate, also when discussing sustainability themes. For a team made up of people with different ideas and background, it is an advantage if everyone is able to put forward their visions into use. Different views of what is sustainability make way for more creative thinking and diverse actions.

We want employees to bring in their own passions. What would I like to use time, effort and money on? We use Nordic KPI to measure how much we are contributing to society. In addition to taxes and tax-related contributions, using a certain percentage of our revenue for supporting cultural causes in the form of #HCPSPIRIT projects equals a bigger amount when we are doing well economically. In the end, you can’t pour from an empty cup.

What we have especially focused on during past years is improving transparency and disclosure. This is due to the nature of financial industry – the grey area in asset management and dishonest usage of the client’s trust which we have actively spoken about. What we can do is to conduct our operations ethically towards clients and other stakeholders and be open about it, hopefully inspiring the industry towards improvement.

All of this proves that responsibility and economic performance can go hand-in-hand. There are yet many sustainability themes we want to incorporate.

Jo states that “HCP has come a long way from where it has started. We have always been keen to change the culture of the financial service industry, and #HCPSPIRIT – our collaboration with community around us and beyond – has been running for many years. For the business of our size, we are punching above our weight. But that’s a viewpoint of a business, not that of the public. What do people expect from businesses today? A lot, lot more. People want to see businesses taking stance, and use their influence to change the world for better. So we cannot stay and be comfortable being where we are. We need to think and act – it never stops to be a force for good.”

You can find more information about our responsibility effort from our website and CSR report of 2019 coming out soon.

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About the Author

Anette Tuomainen works as a Junior Communications Manager at Helsinki Capital Partners as Miika Koskinen, who is responsible for marketing communications and customer experience, is finishing his journalism studies. Anette became excited about HCP for its visionary investing, responsible values and identity attached to cultural actors. From her opinion, these make HCP stand out positively in the investment services industry.

HCP Quant 5/2020 -2,99% | Small-cap value stocks in recession turnarounds | Fund’s country allocation

HCP Quant’s value decreased -2.99% in May. Comparison index MSCI ACWI SMID Value Total Return increased +2.26% in euros. US S&P 500 Total Return increased +3.24% and  S&P Europe 350 Total Return +2.93%. From the beginning of the year HCP Quant has been performing better than its comparison index with -18.60% return compared to -22.35%.

The first quarter of the year has been difficult for small value stocks. Fama French U.S. Small Value Index which measures the development of small value stocks in the United States experienced historic events. The index fell -41.5% in one quarter. This is a record in its 94-year history. Similarly, the drop of the S&P 500 index was left to only -19,6%.

According to The Wall Street Journal’s article there are over 140 funds and ETFs in Morningstar database that are specialised in small value equities. The average loss of these in the first quarter was 37%. From the beginning of the year to the end of April it was -28% and until the end of May -25%. So, compared to US references of control HCP Quant has survived in the corona economic situation better than most.

The same article states that small value stocks can have good prerequisites for the post-COVID-19 recession rebound. One reason is that particularly small businesses experience larger effect on operating income when revenue increases. Small businesses are usually benefitting more from economic recovery.

Another reason is high-yield interest spreads narrowing down. Spreads getting smaller is a sign that investors are willing to take more risk. As history shows similar change has led to small value companies overperforming while larger companies underperform.

High yield interest investments’ spread from the year 1965. Source: Verdad Advisers

High yield interest spread and the following year’s return 1965-2019. Source: Verdad Advisers

The turnaround can be intense. As Verdad Advisers has analysed through 1965-2019, when high yield interest was over 8%, stocks of the cheapest decile and companies in smallest decile by size generated 48% in the following year, S&P 500 index returned 13%. In terms of the cheapest fifth and smallest fifth the return was 42%. In the end of May high yield interest spread had sunk down to 6,5%.

Free cash flow valuation differences and small value firms’ following year’s return 1951-2019. Source: Verdad Advisers

Measured by Free Cash Flow (FCF) the cheapest decile small companies yielded total return of 500% in years from 2000 to 2006. S&P 500 index yielded approximate 8%. The valuation difference between the most expensive and cheapest decile is to date 6 times the free cash flow yield, about as much as in 1999.

HCP Quant country allocation in 29.05.2020. Source: Bloomberg

HCP Quant continent allocation in 29.05.2020. Source: Bloomberg

Above are displayed country and continent allocations of HCP Quant. Any radical changes since the previous update haven’t come up. Emphasis of Australia-based companies has decreased and U.S. stocks can’t be found at all. The only remaining North American companies are from Canada. The big picture stays the same. The biggest emphasis is on Asia and Europe. This is understandable when valuation levels are more affordable than in United States for instance.

You can find the up-to-date valuation levels from HCP Quant’s page where I am updating the fund’s valuation monthly. It is easy to verify from the graphs in the page that the fund has been invested in value equities the entire time, according to its investment strategy.

June’s subscription date is approaching. Don’t let it slip by! As always, you can make an subscription online by clicking the button below. Please remember that the money has to be in the subscription account by June 30th at 4 pm at the latest.

Wishing you a warm summer,
Pasi Havia
HCP Quant portfolio manager

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Even the intelligent investor is likely to need considerable willpower to keep from following the crowd.

Benjamin Graham

(This text is a translation of the Finnish-language HCP Quant investor letter.)

Transparency in asset management: kill the hidden fee bogeyman

Advocating for transparency in asset management

Trending in asset management right now: rising client expectations. What has rocked the trust towards the industry for ages are the to-the-roof rewards of top management with no coherence to fund performance as well as hidden fees. Investments have continued to shift from traditional active asset management towards more low cost options, such as passive index funds. An asset owner wants to know – How much am I paying to invest and what is the net value I gain after all direct and indirect costs? Providing exceptional cost transparency to clients means acting with respect. This should be the norm. Those who stay ahead of this trend, continue to attract clients who trust in active analysis and research. In see-through operations. Service. Products with vision.


Fortunately, the industry is on the verge of turning a new page – a see through one. PwC predicts that fee transparency is facing a rapid change on a global scale. Regulations in all levels of investment activities are increasing. The most essential one until now is perhaps MiFID II from last fall, which is an Europe wide directive for investment services that presses towards increasing cost transparency. But what we see having even a stronger effect is the the will to act for the client’s best interests. Trust is core. And it can’t be won over otherwise.

From the beginning of our history we have committed to full transparency in the company’s fee structure.

This means that we disclose exactly how much our clients pay from our services all in all. We are a fee only – no commissions type of company. This policy eliminates hidden costs and incentives. Also, by investing company’s own equity in our funds, we are saying that hey look, our interests are really aligned with yours.

Here’s what we are up to. As far as it’s possible without losing competitive advantage in terms of investment strategies, we disclose all information from our funds. We publish fund performance on our website and send out up to date information about funds to our clients. Key Investor Information Documents (KIID) are required from asset managers by law and we disclose them on our website. We also show the most recent allocation by asset classes for HCP Black and allocation by industries for HCP Focus and Quant. Since 2018, we have published furthermore all the portfolio companies for HCP Focus. As do we communicate our investor returns annually. For a client to have enough information for decision making, all of this is, essential at least.

You can find information about each of our fund’s performance, fee structure and compliance and risk management on our website. Currently, we are working on updating our responsible investing policy. We are also publishing our CSR report of 2019 soon – stay tuned!

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About the Author

Anette Tuomainen works as a Junior Communications Manager at Helsinki Capital Partners as Miika Koskinen, who is responsible for marketing communications and customer experience, is finishing his journalism studies. Anette became excited about HCP for its visionary investing, responsible values and identity attached to cultural actors. From her opinion, these make HCP stand out positively in the investment services industry.

Focus’s portfolio companies announced their results and the stocks hit an all-time high

HCP Focus has a strong earnings season –  read the portfolio manager’s comments by each company

The earnings season that started mid-April ended last week for HCP Focus portfolio companies. All companies have now reported their results. HCP Focus has remained resistant to the corona crisis. Selected megatrends the portfolio focuses on supported the record scores, such as digitalisation. When looking at the short term period, there are no signs of these trends turning around. Rather the opposite. Currently prevailing trends are escalating further.

Many companies have gained benefit from the accelerated digital leap. Working, buying, and services are moving online even more. All in all, eight stocks out of twelve are either in their all times highest value or near it: Intuitive SurgicalFacebookAmazon.comMercadoLibreShopifyEtsyPayPal, and Nvidia.

Some challenges also await, at least in the short-term. Trump has begun to reheat the trade war with China. The latest turnarounds are a way of driving Chinese companies away from the USA stock market and prevent pension funds from investing in them. Because of this, the only Chinese companies in HCP Focus have been facing falls. Alibaba assumes they can reply to the legislative proposal and believes the situation doesn’t affect them. Baidu on the other hand is thinking of pulling their share out of Nasdaq.

16.4. Intuitive Surgical
29.4. Facebook
5.5. LendingTree
Match Group
6.5. Shopify
18.5. Baidu
21.5. Nvidia
22.5. Alibaba

How did each portfolio company do?

Intuitive Surgical –  a company known for their Da Vinci surgery robots begun the fiscal period in the portfolio. Due to challenges from corona robotizes surgeries came down 95% in China in mid-February. Steep fall was followed by a strong recovery. Intuitive Surgical had reached 70% of the value before corona by the end of March. If Europe and the US follow the pattern the situation could settle as normal in the third quarter. The company’s growth prospects are looking well. The aging population is an indisputable megatrend. The stock has risen 50% from the pitfall of March and is close to reaching a new top.

Facebook – A positive stunner. Social media usage has increased when people are spending time on quarantine. Definitely one of the winners of the current moment – which is not a surprise. This can also be seen in the stock price which is higher than ever before. – The company is doing well. Especially consumers in e-commerce order items home instead of visiting physical shops. AWS cloud service business grew 33%. Amazon is the most long-term investment in the portfolio and will remain as a pillar to lean on. The stock price reached its new top last week.

LendingTree – One of the portfolio disappointments this year. Since the world economy is plummeting consumer trust is facing a crack. Consumers are worried about their own jobs and lack the courage to spend money as before, especially in terms of more expensive purchases that would acquire taking a loan. The outcome was good but the corona creates a shadow of uncertainty for the upcoming year. The stock has plummeted 17% from the beginning of this year.

MercadoLibre – The Amazon in Latin America is one of the corona winners, similarly as other e-commerce platforms. Local small business owners have moved their sales efforts to MercadoLibre’s platform and consumers are buying more and more online. The stock price has reached its historical high.

Match Group – Tinder is perhaps the most well-known out of the many dating services owned by Match Group.  The company performed well in stock but it is overshadowed by corona. People are indeed using more dating apps while saying at home but are not ready to pay for them. In the end of March users of Tinder conducted 3 billion swipes in one day, which is a new record. In countries where restrictions are slackened it can be seen that the amount of paying customers has started rising. The stock is 8% below its last peak of January.

Shopify – Stock rocket of the year. The company has doubled its value from the beginning of the year and enjoys the largest weight in the portfolio. Shopify is expected to grow at least 30% during this year. They are managed to deliver an excellent response to the corona situation by improving their products. Last week Shopify announced a collaboration with another HCP Focus portfolio company – Facebook – about Facebook Shops. Merchants can create branded stores to Facebook and Instagram with it. The collaboration benefits both. Win-win!

Etsy – The second largest weight in the portfolio. E-commerce of handcraft and vintage products is blooming. The gross sales of Etsy-sellers doubled in April. Customers searched especially corona-related accessories, such as masks and protective glasses, which indicates that this high peak in sales can be only momentary. The growing trend of shopping online however favours the company. The stock price has increased by 75% from the beginning of the year.

PayPal – Increasing e-commerce requires a trustworthy payment service. Commerce resettling to online has helped PayPal. Other investors have sensed this accordingly and the stock is higher than ever.

Baidu – Heartache of the portfolio. The stock price at the same level as eight and a half years ago. This year it has dropped by 18%. China is ahead in recovering from the corona crisis and the situation is looking promising. The daily amount of users in the Baidu App grew 28% in March towards 222 million and search requests grew by 45%. Baidu might get effected from Trump’s actions and it’s withdrawal from Nasdaq makes me wonder. Baidu is the most likely candidate to give room for new portfolio investment.

Nvidia – Prominent growth in data center business. Amazon, Google, and Microsoft are Nvidia’s largest customers in artificial intelligence. Growth applies also to games. There seem to be no limits for Nvidia’s growth and it’s a forerunner in utilising the digital leap. It’s hard to say anything bad about the company. This can also be seen in the stock price which is in its highest value. One of the diamonds in the portfolio.

Alibaba – Like the other Chinese stocks in the portfolio Alibaba has also faced pressure. Expectations were however crushed and the post-corona world looks more promising to Alibaba than many other Chinese companies. Alibaba benefitted from Covid-19 in terms of increasing grocery shopping, cloud service, and remote work service usage. Retail sales in the food and supermarket business grew by 88%. In April and May the number of transactions has returned to the level before the crisis. The company expects their revenue to grow 27,5% in this fiscal year.

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Digital companies are flying high, which makes many wonder. Can the skyrocketing continue or are we going towards the next faceplant? Central banks have made it clear that they will give their all to prevent a market crash. They say you can’t fight a central bank. I agree. If I’m wrong there are much bigger troubles in the society than the stock market.

Best regards,
Pasi Havia

HCP Focus portfolio manager

HCP Quant 4/2020 +11.43% | Small companies turn around faster than whales

In April, markets surprised with their strong upswings and downswings. Stocks rallied all over the globe. The HCP Quant fund rose 11.43% in April and its benchmark index MSCI ACWI SMID Value Total Return gained 12.42% in euros. The US S&P 500 Total Return index in turn rose 13.17% in euros, whereas Europe’s S&P Europe 350 Total Return index returned a more modest +6.09%. Since the beginning of the year, HCP Quant is clearly ahead of its benchmark index, outperforming it by approximately 8 percentage points.

Quick rallies are a part of bear markets, after which the downswing continues. April’s recoil could be a so-called sucker rally, but we cannot know this for sure. Central banks’ stimulus efforts are stronger than in the financial crisis, which supports equities. Here too the United States seems to act more decisively and better than Europe.

Russell 2000 Value Total Return (EUR) index (white, RUJTR) vs. S&P 500 Growth Total Return (EUR) index (green, SPTRGSX) year to date. Source: Bloomberg

The United States has this year too kept outpacing other countries. The story is the same old one I have told on many occasions. Big growth companies keep roaring ahead while smaller companies and value companies are having a more difficult time. The graph above shows the S&P 500 Growth Total Return index in euros year to date versus the small companies’ Russell 2000 Value Total Return index. These indices both represent American equity markets.

Where growth companies have returned +0.47%, small companies have lost 25.79% of their value. Quite a difference! We are still speaking of a market which considering the coronavirus situation is very strong. Considering this, HCP Quant has performed quite well this year. Especially considering that the fund does not have a single investment in the United States, but in markets where the trend has been more challenging.

The earnings yield spread of small value companies vs large growth companies. SCV = Small-Cap Value, LCG = Large-Cap Growth. Source: OSAM

The earnings yield spread (cheapest decile measured by the P/E ratio vs. the most expensive decile) is near an all-time high. The spread is already over 21%. Before in history, this has been followed by a 16.8% annualized outperformance period relative to growth companies over ten years. Typically the earnings yield spread is 6-9%. A good question for investors to ponder is how long this spread can keep widening.

Small and large companies’ returns following 26 worst months and quarters. Source: OSAM

In bear markets, small companies’ shares often drop in price faster than large companies’. Correspondingly after hitting the trough, they have rallied more quickly. The US Russell 2000 index lost 21.90% in March and lost 30.89% for the first quarter. One can get a perspective for this crash by looking at how such companies have performed over the next 1-10 years. Small companies’ 25 worst months’ drop has been on average 22.7% (21.90% in March 2020) and for the quarter -34.6% (2020 Q1 -30.9%). This year’s numbers are thus quite close to historical means.

With the market cycle turning from bear to bull, small companies have been one of the best-performing asset classes. After big drops, small companies have outperformed large companies over one, three, five, and ten years.

One of the most used pieces of investment advice is to buy low and sell high. Following this when you are shopping for milk is easy, but when it comes to investing it seems difficult. Investing in something that has had poor returns recently feels difficult. Still, markets have rewarded just such choices made by investors historically.

Are we experiencing a reversal or are we in the middle of a sucker’s rally?

Thoughtful regards,
Pasi Havia
HCP Quant portfolio manager

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“Feel the fear and do it anyway.”
Susan Jeffers

(This text is a translation of the Finnish-language HCP Quant investor letter.)

Corona accelerates digitalisation and takes the Focus fund to a record result in April

The HCP Focus fund was up 23.25 percent in April, making the month the most profitable one in the fund’s history.

Corona pandemic accelerates many of the existing trends in society. These include, for example, online shopping, working from home, digital services, robotics, and other needs of increasing knowledge work.

The fund’s strongest performers over the past month were Etsy, an online store for handicrafts and vintage goods; Shopify, a company providing payment system and trading platform services; and the peer-to-peer loan platform LendingTree. Etsy rose in dollars about 69%, Shopify 52%, and LendingTree 36% over the past month.

“Corona has acted as a catalyst for digitalization, both in people’s daily lives and at work. The current shift in the use of digital services is one that would normally take several years,” says portfolio manager, Pasi Havia.

The rise in the stock market has made the contrast visible between the securities market and the real economy. Stock valuations are not a measure of the current state of the economy, but they reflect the companies’ expected future returns. If investors believe in the future of a company, its stock price will rise.

“If users who have newly discovered digital services continue to use them as the corona pandemic eases and society returns to business as usual, the growth of these companies can be sustainable,” Havia argues.

According to Havia, the rise in equities now seen in April is also due to the exceptionally strong measures taken by central banks.

“Central Banks have poured money into national economies and the cash needs to flow somewhere. These measures boosted US stock exchanges.”

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Whatever you are, act well your part

I joined HCP a little over a year ago because it is a B Corp. I had moved from the UK to Finland for personal reasons and was wondering what opportunities might be out there.

One thing was clear in my mind – I wanted to work for a company with a clearly stated aim to positively contribute to society. Realistically speaking, no company is perfect and everyone has a scope for improvement. But stating to the world outside that the intention to be better takes a little more than a gesture.

The criteria I used was the B Corp certification. I knew the concept, having interviewed one of its founding fathers several years ago. When I checked the list of B Corps in Finland – it was HCP that came up, and no other.

Looking back, it is both a surprise and delight that I ended up with HCP. The company is small in size and growing, which is not necessarily unique among B Corps. But it caught my attention that HCP is an asset manager.

How can an asset manager contribute to society?

This is, in fact, a quest that the company has pursued and continues to do today. In contrast with major institutional investors or the largest asset managers, our abilities in influencing investees is extremely limited. We are not a specialist in ESG start-ups. So what can we do?

The bottom line to me is that anyone – everyone – in society has a role to play, however local, however small. It is a matter of actually doing what we can, and be ready to listen to others what else and how we can do better. And this involves a conversation.

HCP’s Sustainability Report did exactly that in my case. After the first meeting with the HCP team, which was followed by a number of discussions, Tommi the CEO handed me over HCP Sustainability Report 2017. Leafing through the booklet with a pink cover illustration by painter Sini Kunnas (#HCPSPIRIT resident artist) I was both amused and intrigued.

Alongside building a transparent relationship with institutional and retail investors, HCP has been collaborating with artists, musicians, and athletes. They all have their specific needs that go beyond investment. We meet them, discuss their projects, and share our knowledge and experience. We join forces to help them make their ideas come true. (Read more about #HCPSPIRIT projects here.)

What else can we do? We have been collaborating with universities and business schools to help them gain from diverse viewpoints. We work on original topics, and one of which is the Nordic KPI project – a study on the tax and other payments through which companies contribute to the wellbeing of society.

All these are little steps to make society a better place than today. And when every one of us lives with the idea that we all have a role to play, the world indeed will be a better place. We are all work in progress: our B Corp certification in 2017 was 98.3 out of 200 (don’t worry, the pass mark was 80). We know there is a lot more we can do, and that’s why it is so important that we continue our dialogue.

HCP is organising an afternoon event to introduce the SDG Action Manager that B Corp developed in association with Global Compact. The event on 7 May is open to all, B Corp or else. If you are interested, please let us know for participation details or see the event page.

Just like John Allan, a 19th-century architect, famously said: “what e’er thou art, act well thy part”.