‘Screaming buy’: Frazis bullish on US growth software

“This was a Fed-induced slowdown more than anything else. At some point, this headwind will become a tailwind,” he said.

“We’re going to stay positioned strongly for a recovery. After inflation peaked in the scarring bear markets of 1973-74 and 1980-82, markets posted some of their strongest returns on record.”

Software historically cheap

The fund’s high-risk style doubled investors’ money in 2020, before losing 12 per in 2021 and cratering 61.4 per cent over the 12 months to October 2022.

Mr Frazis suggested the massive compression in price-to-earnings multiples over 2022, driven by the US Federal Reserve’s aggressive rate raising cycle, means now is the time for investors to jump in.

“The last time growth software traded this low in 2016, indices advanced [around] 11 times in five years, and [around] 5 times to where we are today,” he said.


“Many companies are still at lifetime valuation lows. Adjusted for growth, the picture looks even better. Key companies are down 85 per cent to 90 per cent, are trading at 25 per cent free cash flow yields, and are still posting solid revenue growth.”

Nasdaq-listed online shopping platform and e-commerce bellwether Shopify had its profit multiple compressed about 90 per cent over 2022, despite revenue growth, according to Mr Frazis.

“In January, Shopify broke above key moving averages for the first time in over a year. Since it has continued growing throughout this period, the stock can move to significant new highs without valuations ever approaching 2021 levels,” he said.

Shopify posts earnings on February 15, with the stock’s 32.3 per cent climb in 2023 headlining a broad rebound in growth businesses that were punished in 2022.

The Sydney-based fundie, who studied chemistry at Cambridge University in the UK, said the fund took a small position in Nasdaq-listed Achieve Life Sciences in January. The biotech has a drug at the phase III stage to help patients quit smoking.

“Achieve’s drug has proven five to eight times more effective than a placebo in trials, with substantially lower side effects than varenicline or bupropion,” Mr Frazis said.


“There are many opportunities like this in the life sciences, which is still recovering from a record washout in 2022, including cases like this where the science has been significantly de-risked.”

Investors, including Mr Frazis, face a jam-packed week of data and earnings, including accounts from Meta, Amazon, and Apple. Consumer giants Starbucks and McDonald’s also report, alongside drug conglomerates Pfizer, GSK. and Merck.

On Wednesday, the US Fed is broadly expected to slow its pace of interest rate increases to 0.25 percentage points to take benchmark borrowing rates to between 4.5 per cent and 4.75 per cent.

The tech-heavy Nasdaq Index closed down 2 per cent on Monday, but is still up almost 10 per cent in 2023.