Clarity's raise, an interview with Ausbiz, and a guest post from Costa

Dear investors and well-wishers,

I recorded an interview with Ausbiz. The systematic quant buying arrived as expected in July, helping us to another good month, with our main fund up another >15% (though that may change before month end).

Speculative tech in the United States looks red-hot, and a number of our companies posted >100% returns from our April/May purchases, and we’ve reduced them accordingly.

But healthcare and biotech remain at one of the lowest valuation percentiles on record. This could be the key to a strong second half. Semiconductors (ex-Nvidia) also look like they’re in the early stages of a recovery.

Clarity Pharmaceuticals

Clarity completed a >$200 million capital raise to a select group of institutional investors. We participated.

Last week short interest reached over 10%, likely in anticipation of this raise and a potential removal from the index, (now the market cap has increased, this is unlikely).

The raise was structured to avoid any new shares going to shortsellers, so it will be interesting to see how these participants react. Most of the short selling happened at lower prices, so there will be considerable mark-to-market losses.

The next major catalyst will likely be the readout from the investigator-led head-to-head diagnostic study. If this is in-line with previous studies - and we suspect it will be - this could move the stock significantly, and is more important than the excitement around financing. The stock is still >100% away from the highs last year, and the company has progressed significantly since then.

Guest post from Costa

Many of you will know Costa Kyriacou, who has been part of the team for some time. Costa wrote the following update on Interactive Brokers, which we purchased in April this year.

Mike

Interactive Brokers 

The best opportunities are often right in front of you. Facebook, Apple, Netflix, Google, and arguably CBA in Australia. It's consistently impressive how often the companies we interact with most in our daily lives count amongst the best performers in the market. 

So we feel very late to Interactive Brokers stock, as this is one of those companies that has been right in front of our eyes.

IBKR is the definition of a company with true customer love. The platform is by far the best for what it does - and I say that coming from several years of fund accounting experience using almost every platform available.  

Their pricing is consistently the lowest across the board, without the gimmicks of ‘free trades’ and the like (Robinhood has also been a top performer recently).

Retail investors can access institutional grade products, from stocks and ETFs, to bonds, treasuries, an advanced options trading platform and fixed income.  

The company’s defence is its technology and long term commitment to low cost.

They’ve avoided proprietary trading against its customers or selling their flow. And unlike CFD platforms, (which are banned in the United States but are curiously legal elsewhere), Interactive Brokers gives clients direct market access. 

Competitors have to square up against decades of tech investment and an early strategic decision to automate every aspect of the platform as much as possible. Though some find their customer service a little frustrating, this gives them a serious cost advantage. And after all, the best customer service is one you don’t need. 

Most recent results 

Brokers benefit from active markets, and this year has been characterised by extreme volatility, starting with Trump’s tariffs sending the market sharply lower, only for a swift reversal sending market to new highs as FOMO kicked in.

IBKR was able to monetise both ends of the move, and executed a record 249 million trades (+52% YoY) with 250k new accounts added – the fastest pace in its history. 

• Net revenues grew to $1.48bn up 20% YoY 

• Net interest income: $860m, a record despite falling rate 

• Net income: $1.0bn up 24% YoY 

• Customer accounts increased to 3.87m up 32% YoY 

• Commissions leapt 27% to $516m backed by heavier trading volume across both equities and derivatives. 2% higher than consensus  

• Pretax margin was 75% beating consensus by 35bps  

• No debt on the balance sheet. 

• Overnight trading volumes rise +170% YoY, driven by the firm’s expanding ATS and Smart Order Router 

The year-to-date total of new accounts (528k) already exceeds all of 2023, and IBKR is on track to hit the 4 million account milestone next quarter—just 12 months after passing 3 million. Customer equity rose to $665bn, up 34% YoY. 

For a company to prove ‘true customer love’, we want to see two things: fast growing revenues and high margins, as customer love translates to growing customers spending more and more at profitable pricing.

IBKR’s multi-decade investment in technology gives them a solid >72% operating margin.  

Since our purchase in April, the stock is up 53%.  

This is a company we expect to invest in for a long time - subject to our risk modelling of course!

Costa Kyriacou