2020: Truly a year to remember

Dear investors and well-wishers,

Our fund returned 8.5% net in December. In 2020 we outperformed both the MSCI World Total Return and ASX 200 Total Return by over 100% net. For every dollar the local index has made since inception, we have returned over $5, for an annualized return of 31% net. This fund launched straight into two consecutive bear markets, so our net IRR includes both those periods, as well as all our mistakes and missteps.

One of the local life sciences companies we backed listed this week. Committing primary capital to companies doing important but complex and risky drug development work is one of the more valuable things we do.

We will host a webinar this Friday at 11am, you can register here, and feel free to ask questions or email them to me in advance.

We now hold over 45 stocks, many growing in excess of 100%, and on a weighted average basis growing at >80% organically.

It’s the achievements of the companies themselves, rather than the price moves, that are truly spectacular. For example:

Plug Power is now transporting over 30% of US groceries with hydrogen,

Return since purchase

Moderna successfully brought to market an mRNA vaccine and validated their entire pipeline:

Return since purchase

Ultragenyx is rolling out their treatments for four ultra-rare diseases,

Tesla has changed the way the world looks at electric vehicles and produced over 500,000 vehicles in 2020. The firm managed to grow during a ~50% decline in auto sales, suggesting significant latent and unfulfilled demand:

Return since purchase, though I initially purchased around $16 before the launch of the fund

This was a more than 10-fold increase in production over the last five years:

It’s surprising so many were surprised when the stock price went up, rather than down. Having fielded sceptical questions on Tesla for many years now, perhaps some of this scrutiny should be turned on those who were short.

There are charts of Tesla’s market cap vs the rest of the auto industry doing the rounds, but this is what you’d expect, much like how Apple captured the majority of the value of the smartphone industry. As an example of how Tesla affects the fundamentals of other car companies, Tesla caused the entire auto industry to spend tens of billions of dollars retooling their factories to produce electric vehicles. Before Tesla there was basically zero serious interest in electric vehicles from the major manufacturers.

Pinduoduo took >10% market share from Alibaba in a few short years and is the first truly successful combination of gamification and social with ecommerce:

Return since purchase

One of the aspects of the story that gave us comfort was that Tencent was a major shareholder. We see Tencent as a serious business and humbly suggest that Pony Ma has a better idea of what’s going on in China than short-sellers in Australia. Of all the different companies Tencent has backed to take on Alibaba in e-commerce, this is the one that really worked.

Carvana grew through a period where auto sales declined 50%. We hold three auto stocks, all of which grew in 2020,

Twist dramatically improved the emerging foundational science of DNA synthesis, while generating an entirely new drug development platform, and a new way of storing computer data in DNA. Well done Twist:

Return since purchase

Shopify enabled countless entrepreneurs and will be a true challenger to Amazon in years to come as consumers flock to DTC micro brands and entrepreneurs turn away from predatory tactics at Amazon:

Sea and MercadoLibre maintained >100% growth rates and are simultaneously entrenching themselves in the e-commerce and payment systems of South America and South East Asia, while bringing the 21st century to some of the world’s youngest populations,

Farfetch established arguably the first decent luxury online platform that has been embraced by brands and customers alike,

Livongo merged with Teladoc to create the world’s leading digital health platform,

Guardant Health brought the dream of blood tests for cancer dramatically closer, and we think Burning Rock Biotech will be the leader in China (we doubt Western companies will ever be allowed to systematically sequence the Chinese),

Afterpay maintained another year of >100% organic growth with a single product – and forced everyone from Paypal to Shopify to Mastercard to respond,

Square, by signing up both merchants and more recently (with their cash app) consumers, is in the process of creating the first genuine closed payment loop, bypassing successive layers of rent-seeking middlemen. Along with Paypal, they’ve helped shift the crypto space mainstream,

Disney developed their Direct-to-Consumer product Disney+ which with ESPN, Star Wars, Marvel and Pixar is perhaps the best media offering available anywhere, today:

Irrespective of whether you like us, the achievements of our portfolio companies speak for themselves.

Bear markets

When I first went to England almost 15 years ago, the pound was flying high and young Australians were leaving en masse for careers in London. All that changed in the aftermath of the GFC when the UK implemented sensible sounding austerity measures (Australians were handed cash). Middle class public servants were sacked en masse, community programs were cancelled, and the newly unemployed were cast on to a struggling private sector. By the time I left, unskilled labourers in Australia were earning substantially more than Oxford graduates.

The situation was far worse in Greece, where continental politics forced even harsher austerity measures, in a vain attempt to balance budgets, lower the price of goods and labour, and stimulate demand. In Australia, such shifts can and do happen overnight through a devalued currency. Perhaps a better approach would have been to grow out of the crisis.

The result of these policies was a depression worse than that of the US in the 1930s.

I was mercifully spared the brunt of these economic tragedies, but I do know what times like that feel like.

Zooming forward to March 2020, the coronavirus shock was far worse. Revenues of entire industries were zeroed overnight. The whole world held its breath (and wallets) tightly. None of us knew what was going to happen.

Those of us in the investment industry had very serious decisions to make, and very little time in which to make them.

But this time, both sides of politics around the world united with regulators and central bankers for the greater good. Cash was handed out directly to citizens and companies. Regulators relaxed hard-won laws to ensure stumbling mortgage payments didn’t trigger a financial crisis. Central bankers cut rates to zero and started injecting trillions of dollars of liquidity into markets. I was constantly on the lookout for talk of austerity, balancing budgets, and raising rates, but even today with vaccines available and the recovery in full swing, this is mercifully absent.

March 2020 was not the UK in 2008, nor Greece in 2009. All elements of society were actually cooperating (!) to support whatever it is we call the economy.

We wrote at the time that this looked like a perfect scenario for equities, especially when combined with mass pessimism and flight to cash. And so it proved.

This wasn’t just good for us: such rare cooperation achieved something remarkable: one of the fastest recoveries ever from perhaps the sharpest shock ever.

Theory and strategy

As readers will know, instead of starting with historic financials, we focus first on consumers and the key decision points when one product or service is chosen over another. We look for explosive growth measurable in data, rather than guessing who’s going to perform next quarter or next year. And we consider true customer love and a rapidly growing and increasingly engaged user base as the real sign of quality.

The same reason these companies have such high short interest is the same reason they perform so well. They look like shorts because they don’t generate significant earnings and cash flow. Many of them look like they’re losing more money each year as they double in size.

A better way of looking at this is that they’re investing in human capital at rates of return orders of magnitude higher than those available from factory and plant. They’re hiring new staff, spending on sales marketing, and opening new offices. All with strictly measured rates of return.

These companies look bad because these investments are treated as costs. But they perform well because the return on these investments is so exceptionally high.

Most managers and allocators are not thinking this way, which we know, because we’ve met so many. This is good for us as a fund.

We’re now more diversified than ever, with over 45 positions (largest is ~7%). Returns seem to have actually improved, if anything.

We are also now allocating more and more to the life sciences, where there are exceptional tailwinds (rare positives from the coronavirus era) and the companies trade independently of the rest of the growth complex.

If you would like an example of some of our recent work in the life sciences, let me know.


We have quite ambitious goals but have never actually stated them before. Broadly, our target is to 10x the fund’s capital on a net basis every decade. $100,000 would become $1 million ten years later, then $10 million. This implies 26% net per annum (and of course, that we stay healthy and focused).

This might sound ambitious – perhaps too ambitious, but our portfolio companies are growing at multiple times that rate. And in our fifth year as a firm, we are comfortably ahead of this goal. And we’ve done this in relatively large companies too, suggesting size is not going to pose a problem any time soon. To pick a handful of the moves we’ve captured:

– Afterpay from ~0.9 billion to over $30 billion
– Carvana from ~$6 billion to $49 billion
– Pinduoduo from sub $30 billion to over $200 billion
– A ~$700 billion increase in Tesla
– Twist Bioscience from ~$1 billion to over $8 billion.

The best thing about an ultra long-term goal like this is that it strengthens decision-making. In March 2020 we weren’t trying to figure out what to do in that particular moment. Instead, we considered what we should do in every future scenario where a sudden shock causes a steep sell-off, as last year won’t be the last we’ll have to face. This led us to the correct answer, namely, to stay steady and stay invested, as this is the right long-term strategy.
Outlook for 2021

So where are we now? Markets have clearly run hard. The reality is most people kept their jobs in 2020. Spending on restaurants and travel was down, so many are actually better off now than they were a year ago. It’s not considered good form to say so when so many are still suffering in the handful of industries that remain deeply affected. But that is the reality.

During the sell-off we repeatedly ran the ruler over our portfolio answering the same questions:
– Does this company have customer love?
– Is it truly doing something special?
– Is it growing explosively and visibly adding users, revenues, gross profit dollars and value every single day?
– In the life sciences we constantly ask, are medical end users and payers going to want this?

Our process at the lows of March is precisely the same as the highs of January 2021 – maintaining a diversified portfolio of these kinds of companies. Dodging 15-30% multiple contractions is a very false victory when it comes to companies growing at over 100% organically, even when you get the timing precisely right. The real gains are made be capturing that growth several years in a row.

We have added a number of new positions that have much in common with the companies above in their early stages, and already feature amongst our top returners.

I can’t promise anything on returns. But I can promise that we will constantly maintain a portfolio of the highest quality and fastest-growing innovators on the planet.

In March, we looked foolish. Now we look smart. Soon, no doubt, the tides will turn and we will look foolish again. Investing is a contact sport played in public. We’re quite used to these cycles now, and have some confidence that overall we will end up ahead, not because we are smart, but because the companies themselves are performing so well. If they weren’t, they wouldn’t be in the portfolio.

A sincere thank you for all your support

If you’d like to invest with us, you can access our investment portal and fund documentation through the button below.


We will host a webinar this Friday at 11am, you can register here, and feel free to ask questions or email them to me in advance.


The information in this note has been prepared and issued by Frazis Capital Partners Pty Ltd ABN 16 625 521 986 as a corporate authorised representative (CAR No. 1263393) of Frazis Capital Management Pty Ltd ABN 91 638 965 910 AFSL 521445. The Frazis Fund is open to wholesale investors only, as defined in the Corporations Act 2001 (Cth). The Company is not authorised to provide financial product advice to retail clients and information provided does not constitute financial product advice to retail clients.

The information provided is for general information purposes only, and does not take into account the personal circumstances or needs of investors. The Company and its directors or employees or associates will use their endeavours to ensure that the information is accurate as at the time of its publication. Notwithstanding this, the Company excludes any representation or warranty as to the accuracy, reliability, or completeness of the information contained on the company website and published documents.​

The past results of the Company’s investment strategy do not necessarily guarantee the future performance or profitability of any investment strategies devised or suggested by the Company.​

The Company, and its directors or employees or associates, do not guarantee the performance of any financial product or investment decision made in reliance of any material in this document. The Company does not accept any loss or liability which may be suffered by a reader of this document.

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