Magellan has made its first investment in Amazon after exiting an 8% position in Chinese technology firm Tencent.
The firm had recently significantly reduced its weighting to Tencent and Alibaba and imposed risk controls to prevent holdings to Chinese companies from getting too large.
In its Magellan High Conviction fund, managed by Hamish Douglass and Chris Wheldon, this included exiting exposure to Tencent and heavy reduction of its exposure to Alibaba.
In an investor webinar, Wheldon said the fund had instead made its first investment into Amazon at the start of August after watching its valuation for a long time. This was the first time any of the firm’s funds held the stock.
The fund historically had a large weighting to internet firms with 51% weighted towards internet and e-commerce companies.
“Tencent is an incredible business but it is exposed to regulatory risk and we will not speculate with investors’ money if we can’t determine where the ball will land and will not tolerate elevated risk,” Wheldon said.
“We have followed Amazon for a long time but have had questions over its valuation. Recently, we have done thorough valuation work on it internally and this coincided with the Tencent reduction.
“It is a highly profitable business with access to secular growth opportunities in e-commerce and cloud computing and is now trading at an attractive price.
“These are evolving markets and Amazon is set to benefit from these tailwinds in the future, it is not only already the clear leader but is strengthening its position by reinvesting in its services and features.”
Shares in Amazon rose 8.9% since the start of the year but were down 0.8% over one year to 1 September, 2021.
While the fund exited its exposure to Tencent, it retained a small position in Alibaba as, like Amazon, this was focused on cloud computing.
“We still like Alibaba but our 5% weighting is much smaller than in the past, Tencent and Alibaba are fundamentally different businesses,” Wheldon said.
“They are both large Chinese technology companies but Tencent has a large social media and gaming presence whereas Alibaba is about cloud computing which we don’t think is exposed to the same risks.
“We are still comfortable with its prospects but our conviction has declined given recent events and there are a wider range of possible outcomes.”
Magellan was not the only company to be cautious about China as Munro Partners had also exited all of its China exposure.
