INVESTMENT MARATHON #14 • February 2024

The building blocks of Aspira Wealth’s long-term investment strategy. Newsletter by Alex Vozian, CFA, Co-Founder and Associate Portfolio Manager

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Guess who Alex and Chris met during a strenuous hike in Port Angeles?

A Steller’s Jay! – the symbol of adaptability.

SUMMARY

• What makes Aspira’s investment process special?
• Featured holding – MEDPACE HOLDINGS INC (MEDP)
• Canadian and U.S. markets update
• Performance update

Methodical AND REPEATABLE PROCESS

When evaluating potential investment strategies, investors often focus on how much they earn compared to the risks involved. However, there’s a crucial aspect that sometimes is overlooked – how repeatable the investment process is.

Aspira’s research team has a methodical investment management process that was refined over the years. We believe it will help us:

• Increase the number of good decisions.
• Detect weaknesses in our decision making.
• Maintain objectivity and avoid impulsive decisions driven by emotions or short-term market noise.
• Reduce the key person risk - if Alex is on vacation (or hit by a bus) anyone from the team could apply the same rule-based process to manage our investments.

Here is an example related to our Dividend Value Discipline™ investment strategy. We relentlessly seek exceptional investment opportunities using the following methodical process:

• 1000+ Canadian and U.S. companies qualify for the strategy after passing the requirements for:
  • size - is it large/liquid enough for us to be able to buy and sell it quickly when need be?
  • dividend growth - we have a strong bias to dividend paying stocks.
  • circle of competence – is it from a sector or industry that we understand?
• 300+ companies are selected for “prospecting” by our team every year, based on our current investment themes, market developments, and sector biases.
• 50+ companies are promoted from “prospecting” stage to a deeper review.
• 10+ best companies from the shortlisted 50 go through “initiation” stage:
  • Each initiation report takes a couple of weeks of deep research, expert interviews, financial modelling, valuation, team brainstorming.
  • The initiation research report is following a strict quality checklist with 50+ factors related to the management, economic moat, tailwinds, ESG and dividend factors.
• BEST 50 LIST - the 10+ names initiated per year, are being added to the Aspira Best 50 names that we own or may own in the future. To make space for the new 10 names per year, we regularly retire the weakest companies from our Aspira Best 50
• HOLDINGS LIST - we typically own a part of the Aspira Best 50 list and adjust the holdings monthly, based on how the company’s story evolved compared to the market value of its shares.

FEATURED HOLDING – Medpace Holdings Inc (MEDP)

While too many investment managers explain their recent underperformance with not owning “big technology”, “FANG”, “Magnificent 7”, we are pleased to occasionally own little-known names (like Medpace) that deliver impressive results comparable to big tech!

We discovered, studied, and bought MEDP in our Dividend Value Discipline™ strategy in April-May 2023. Our first estimate was that MEDP shares would increase in value by 40%+ in the next 3 years. Few months later we had another deep dive into the MEDP’ story and increased our estimated upside again(!) by 30%+.

To our major surprise, the market value of MEDP shares almost doubled in less than a year (broad market gained just 20%) - much faster than we were expecting!

Obviously, very few of our holdings generate huge and fast returns like MEDP, and some of them even decline in value. Investment in MEDP, however, is a notable example on how one could make money without exposure to overly hyped technology stocks.

Charts courtesy of StockCharts.com

Medpace (MEDP) is a full-service clinical research organization (CRO) providing Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries. MEDP’s has regulatory and therapeutic expertise across major areas like oncology, cardiology, metabolic disease, endocrinology, central nervous system and anti-viral and anti-infective. Headquartered in Ohio, United States, MEDP employs 5,900 people across 42 countries.

MEDP ranks somewhere in the middle of our best 50 names, based on proprietary quality score.

• GOOD MANAGEMENT. We admire large insider ownership, founder led company, long tenure, focus on cash flow generation, transparency, lack of earnings adjustments.
• GREAT ECONOMIC MOAT. Competitive strength originates from the large scale, significant switching costs, intangible assets, fragmented customer base. The economic moat is confirmed by solid free cash flow margin and high return on invested capital.
• GREAT INDUSTRY TAILWINDS. The share of outsourced clinical trials is increasing. This is on top of growing demand for new medications as well as technological advancements that fuel the research pipeline.
• GOOD ESG. The environmental, social and governance score of MEDP is remarkably high. Sustainalitycs is ranking MEDP as 36^th best from 876 pharma companies.
• DIVIDEND. We are always biased to own companies that pay dividends. MEPD is an exception – it doesn’t pay a dividend, yet. We are fine with their choice – they returned capital to shareholders by buying back 15% of their shares during 2022-2023, and they reinvested their earnings into their high margin business.

Because the market value of MEDP shares is near our estimated fair value, we might consider selling it soon after one final deep review.

CANADIAN AND U.S. MARKETS UPDATE

In 2023, the stock market gained:

• 12% in Canada, close to 5-year average gain of 11%
• 26% in the United States, significantly better than 5-year average gain of 14%

This is good news for people who stayed invested in the market. This is great news for proactive investors who added money to their investment accounts during brief periods of panic (late 2018, spring 2020, fall of 2022).

Since the start of 2024, the Canadian market is up 2%, while the U.S. is up 6%.

While we are still optimistic about the long-term opportunities, we currently see fewer than usual opportunities to buy equities at a significant discount. The markets are close to all-time high levels and a lot of good news are priced in (resilient consumer, declining inflation, and declining interest rates).

Charts courtesy of StockCharts.com

PERFORMANCE UPDATE

We shared our 2023 performance in our latest Quarterly Compass. We are pleased with the performance of our strategies since the start of 2024 and look forward to sharing the performance numbers for Q1 2024 in our next Quarterly Compass from early April 2024.

As a reminder, we place no weight on short-term results, good or bad, and neither should you.

PLEASE REACH OUT

Let's chat about what is on your mind and the puzzles you are trying to solve.

• Schedule a meeting with Chris or Alex.
• Ask your questions by email to Chris or Alex.
• Read our earlier publications here.
• Subscribe to our newsletters here.

It is our mission to help our clients live out their greatest aspirations!

DON’T KEEP IT A SECRET.

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The Steller’s Jay had an ant in the beak! (left image). Many birds are known for “anting” - rubbing of ants on their feathers to repel parasites.

The feathers of the bird are super beautiful (right image).

The information contained in this report was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete and it should not be considered personal tax advice. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views expressed are those of the author and not necessarily those of Raymond James. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. This provides links to other Internet sites for the convenience of users. Raymond James Ltd./Raymond James (USA) Ltd is not responsible for the availability or content of these external sites, nor does Raymond James Ltd/Raymond James (USA) Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd/Raymond James (USA) Ltd adheres to. Raymond James Ltd., Member—Canadian Investor Protection Fund. Raymond James (USA) Ltd. (RJLU) advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Raymond James (USA) Ltd. is a member of FINRA/SIPC.