Quality Investing generated an annual return of +31.3% to the Sifter Fund in 2019
Sifter is an actively managed stock fund that invests in top-quality companies from across the globe. The fund focuses on the best revenue models that we want to own in the long term.
The contents of this page do not constitute investment advice or purchase recommendations for stocks. This page contains information on Sifter’s past year and our opinions on the companies we have invested in or whose shares we have sold. The past performance of the fund is no guarantee of future results.
The Sifter Fund invests in top-quality companies from across the globe. We sift through 65,000 publicly traded companies to discover the ones with exemplary revenue models.
The strongest growers in the Sifter Fund in 2019
Below, you will find a concise and easy-to-understand list of the top growers in the Sifter Fund (1 January – 31 December 2019, return after expenses, EUR). Even though we are happy to see such a strong increase in the price of these stocks, our focus is still on the strong business models and revenue-generating abilities of these companies.
Lam Research
Lam Research +123,4 %
The demand for smart devices is expected to increase at an explosive rate. Circuits and microchips are becoming smaller and smaller, and so are their quality requirements. This has also increased the complexity of their manufacturing process. Lam Research is the market leader especially in the manufacture of devices used in memory chips.
Lam Research’s customers are expected to increase their investment budgets in the coming years, which will likely further increase the future demand for the devices manufactured by Lam Research.
Taiwan Semiconductor Mfg. Co
TSMC +67,8 %
TSMC, which is headquartered in Taiwan, is one of the largest contract manufacturers in the semiconductor industry (also referred to as a semiconductor foundry). TSMC manufactures a wide range of microchips, including the 7-nm chips used by Apple in its smartphones and other devices. Apple accounts for around 19% of TSMC’s revenue.
During the third quarter of 2019, the company suddenly reported a 12.6% increase in comparable revenue. This surge was the result of several new smartphone launches as well as increased demand from the company’s IoT customers. The company’s share price reflects the strong increase in demand for the products manufactured by the company.
At the end of 2019, the company’s management announced that it would significantly increase its investments to meet this rising demand that has been partially fueled by 5G. In addition, the company’s management predicted a double-digit increase in revenue for 2020–21. The company is the technology leader in its field and could possibly be the first one to launch a 5-nm microchip. The significance of these chips is set to increase in smart devices as they become more versatile and smaller.
S&P Global Inc
S&P Global Inc +65.3%
Standard & Poor’s Global, which is headquartered in America, is known especially as a bond credit rating agency. S&P’s market position is strong, especially in the US, where bonds are typically required to have at least two credit ratings. S&P and Moody’s control the majority of this market. In addition, S&P is responsible for licensing some of the most well-known benchmark indices, such as the S&P500 and Dow Jones. The company also provides other financial information services.
In 2019, the US and Europe eased their monetary policies, which increased the demand for high-yield bonds. This was reflected positively in S&P’s credit rating operations (47% of revenue). The company’s tremendous and stable profitability increased further, and their adjusted operating margin has broken the 50% ceiling.
In the short to medium term, S&P’s prospects are supported by two factors: large and financially sound American companies have become more eager to borrow than they were in 2018, which was a particularly bad year for corporate borrowing. In addition, corporate bonds are estimated to mature at a fairly steady pace in the near future, which will guide customers back to the services provided by S&P. In 2019, S&P issued its first credit ratings in China, as well as its first ESG ratings. These business segments will provide the company with new prospects for growth. In the long term, S&P should be set to benefit from the overall growth of capital markets.
Fund performance
Sifter Fund Global (Class I) cumulative return after all expenses.
YTD
3 Years
5 Years
Since inception (2003-)
“For most asset managers, investing means betting for and against companies and focusing on current trends. Sifter’s calm approach is what sets it apart.”
Mika Mäkeläinen, serial entrepreneur
This is how we discover the best companies in 2020
Picking the best stocks from the global stock market is like looking for a needle in a haystack. At Sifter, we sift through over 65,000 companies worldwide – by no means a small feat.
In our partner investor manual, we explain how we find the best companies and implement our long-term investment strategy.
- Includes five tips for quality-oriented investors
We made two new investments in 2019
We typically make only 2–5 new investments every year. A company that is to be included in the Sifter Fund’s portfolio must be better than another pre-existing investment. These new investments are characterized by such factors as:
- A strong track record of making money
- High barriers to entry
- Clear competitive advantages and a time-tested revenue model
- A healthy balance sheet, preferably with zero debts
- A suitably affordable price in relation to its expected money-making ability
Why did we make only two new investments?
Trading generates unnecessary costs, which then decreases investor returns. That is why we are long-term shareholders and why we are constantly invested in the development of our chosen group of exceptional companies. We are not speculators; we are owners.
Sifter invested in Disco (JPN)
Disco Corporation, which is headquartered in Japan, manufactures the precision dicing saws and laser saws used by the semiconductor industry to create silicon wafers. Disco’s most significant markets are located in China Taiwan, Korea and Japan.
Disco’s 70% market share makes it the market leader in its particular niche. This has resulted in a large installation base for its machines, which has also led to a very profitable after-sales equipment and maintenance business. After the quarter that ended in September, Disco’s turnover fell by 12% compared to the previous year due to a slowdown in device sales, but its profitable maintenance business kept its operating margin at 29%. After this weaker period, the demand for Disco’s devices is expected to increase as the demand for the semiconductor industry increases.
- Disco commands around a 70% share of a very particular niche
- The company has a strong business model and its operating margin was 29% (September 2019)
- The company is debt-free and has a strong balance sheet
- China’s investment in the semiconductor industry is a long-term trend that will support Disco’s growth
Sifter invested in Atlas Copco (SWE)
Atlas Copco is a top-quality company from Sweden that was founded in the 1870s. Currently, the company is the world’s largest manufacturer of industrial compressors, with customers in over 180 countries.
Atlas’ devices are critically important to its industrial customers. A sudden lack of compressed air will typically stop an entire factory, and badly maintained compressors can damage a factory’s other equipment and end products with contaminated compressed air. It is for these reasons that a change in device vendors includes a great deal of risk and is not done lightly. A reliable partner such as Atlas Copco is at an advantage in this type of scenario.
The company’s leading market share has also resulted in a large installation base for its devices. This large installation base has also helped make its maintenance services both efficient and profitable. As a result, its service business generates a third of the company’s revenue.
- The company’s large size provides benefits of scale in acquisitions and product development
- Large device installation base
- Low net debt compared to earnings
- The company is provided with a steady stream of revenue from different customers in industry
- Revenue is evenly divided between Europe, North America and Asia
We sold our shares in four companies in 2019
The companies in our portfolio can never rest easy when it comes to being replaced by other, more interesting investments. If it seems that a company’s revenue model will soon begin to crack or if we find a better option, we will replace the company with a newer, more attractive investment prospect. This way, we can ensure that our portfolio contains only the best businesses and revenue models in the world.
We sold our shares in the following companies:- Rolls Royce
- 3M
- Raytheon
- Air Liquide
Why did we sell our investments?
We never sell our shares when they “peak”, as we want to invest in top-quality companies in the long term. Our analysts actively monitor the business activities, status and future prospects of the companies in our portfolio. We will only sell our shares when we feel that a company’s revenue model has weakened or when we discover a better option.
We sold our shares in Rolls Royce
We believed for years in the company’s strong technological advantage and the lucrative revenue model of its maintenance division. Unfortunately, we were left unimpressed. The money-making ability of this former top company has significantly decreased in the last few years.
Even though Rolls-Royce has shown signs of long-term competitive advantages in its aviation and motor engine business, the numerous short-term questions and uncertainties regarding the company’s ability to generate enough profits to meet its obligations have made the investment too risky.
- We invested in the company in 2012
- This investment provided Sifter Fund investors with +39% in profit
We sold our shares in 3M
3M’s stock price has risen fairly well over the years, but its ability to generate revenue has not kept up. Therefore, the expected return of 3M in Sifter’s portfolio was low.
In addition, 3M is a conglomerate with an unclear focus and a revenue model that was difficult to predict. We found a better company to replace it (Disco Corporation) with a more focused business and an increasing ability to generate profits.
- We invested in the company in 2013
- This investment provided Sifter Fund investors with +54.7% in profit
- This profit figure does not include dividends, which were around 2–3% per year
We sold our shares in Raytheon
The proposed fusion with United Technologies makes Raytheon an unsuitable investment for Sifter.
This merger would result in significant integration risks, weaken Raytheon’s strategic focus areas, and make the company a direct and significant competitor to Safran, a company that we consider the better option. In addition, we want to avoid including any firearm, tobacco, alcohol or adult entertainment industry businesses in Sifter’s portfolio as a matter of principle.
- We invested in the company in 2012
- This investment provided Sifter Fund investors with +143% in profit
- This profit figure does not include dividends, which were around 1.5–2.2% per year
We sold our shares in Air Liquide
Air Liquide’s organic sales growth has been slow for several years, and their future prospects seem no better.
The increase in earnings in recent years has been the result of cost-cutting measures as well as the cost synergies involved in the deal with Airgas; neither can be expected to continue or provide any significant additional benefits. At the same time, the expansion from pipelines to the gas bottle business has most likely made Air Liquide more susceptible to competitive pressure. Air Liquide’s debt level is high when compared to other Sifter companies.
- We invested in the company in 2016
- This investment provided Sifter Fund investors with +21.4% in profit
- This profit figure does not include dividends, which were around 2.5% per year
This is how we discover the best companies in 2020
In our partner investor manual, we explain how we find the best companies and implement our long-term investment strategy.
- Includes five tips for quality-oriented investors
We believe in strong revenue models. We are constantly searching for top-quality companies with exceptionally strong revenue models. The best companies provide their owners with peace of mind.
Fund classes
Sifter Fund Global
Sifter Fund Global
Sifter Fund Global
The Board of the Fund has decided that a subscription fee is not charged for new investments of the Fund, contrary to what is stated in KIID.
We want to own high-quality revenue models from across the globe. We believe that investing in 30 companies from different countries and sectors provides us with enough diversification.
This is how we discover the best companies in 2020
Picking the best stocks from the global stock market is like looking for a needle in a haystack. At Sifter, we sift through over 65,000 companies worldwide – by no means a small feat.
In our partner investor manual, we explain how we find the best companies and implement our long-term investment strategy. There is no one key secret to our fund – read our manual to find out how we:
- Sift through the entire stock market
- Compare different companies
- Identify the best companies
- Monitor our investments
- 5 tips for quality-oriented investors
Download the manual
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