Poking around in the holdings of smart fund managers is a great way to get new investing ideas.
Most fund managers issue monthly or quarterly updates on their top portfolio holdings and I like being nosey and seeing what's on their radar.
Recently one company has been popping up time and time again: utility billing software company Gentrack Group Ltd (ASX: GTK).
Wide appeal to funds
Gentrack was a significant holding of two funds I looked at recently, but what is especially interesting is the diversity of these funds; dividend fund and a value orientated fund.
New Zealand fund manager Pie Funds holds Gentrack in its Australasian Dividend Fund. The fund had NZ$93 million of assets at the end of September and 6.29% of that was invested in Gentrack.
Meanwhile, the Tamim Australian All Cap Value Portfolio reported allocating 7.5% of its portfolio to Gentrack at the end of October.
Secret sauce?
The funds are certainly onto something. The Gentrack share price has surged 72% this year, while shares in fellow billing company Hansen Technologies Limited (ASX: HSN) have dipped 7%.
Billing software is essential to water and electricity companies which makes the annual fees Gentrack gets from new sales more 'sticky' than in some businesses. This helped the company report a juicy 32% EBITDA margin (Earnings Before Interest Tax Depreciation and Amortization) yesterday in its full year results.
Gentrack is targeting long term EBITDA growth of around 15%, is profitable, reinvests sensibly in R&D and, of course, pays out dividends.
You can see why it would appeal to funds across the spectrum.
Should you buy?
For the record I'm not recommending any of these funds. But I do think it's valuable to dig into the qualities successful fund managers look for.
I think Gentrack has fantastic economics and is being managed to a high level. However at $5.91 per share I think much of that fantastic-ness and growth is being accounted for.
I'm keeping Gentrack on my watch list and will be quick to pounce if the price falls.
