Cooper Investors Global Endowment

Portfolio Insights & Market Observations

*MSCI AC World Net Divs AUD
Source: Internal CI data reports, 31 March 2025

The fund is today positioned 56% in the ‘Protect’ bucket and 44% in ‘Grow’.

The ‘Protect’ bucket consists of three groups of investments (including dry powder in the form of cash):

• Real Assets – E.g. Hess Midstream (HESM), the owner of premium pipeline and terminal infrastructure in the North American oil and gas industry. Revenues are largely guaranteed by minimum volume contracts, the stock trades on an attractive 7% dividend yield today.
• Royalties & Resources – E.g. Franco Nevada (FNV), a leading gold-focused royalty and streaming business, providing exposure to the gold price and exploration optionality with minimal operating and capex risk.
• Founder-Led Investment Trusts – E.g. Investor AB (INVE.B), the listed holding company of the Swedish Wallenburg family that owns a portfolio of listed and unlisted Nordic businesses that are typically world leaders in their niche (such as ABB and Atlas Copco).

The ‘Grow’ bucket also consists of three groups of investments:

• Technology Infrastructure – E.g. Accenture (ACN), the world’s leading IT consulting and managed services outsourcing business, that essentially represents a toll on technology innovation.
• Financial Infrastructure – E.g. CME Group (CME), the world’s leading derivatives exchange with monopolistic positions in its key markets and a counter-cyclical revenue model.
• Emerging Market Aspirants – E.g. HDFC Bank (500180), the leading private sector retail and commercial bank in India and the best way to invest in the secular growth of credit in the world’s largest democracy.

There were no material buys or sells during the quarter, with turnover equivalent to an annualised rate around 10%.

Observations From The Road

2025 marks 106 years of operations since the founding of Canadian National Railway (CNR) and 30 years of being a publicly listed company. Since listing in 1995, Canadian National has been a compounding machine, returning a total of 18% CAGR to shareholders. A long-term perspective is important when discussing CN today given the noise around tariffs, trade wars and geopolitics. In the preceding 106 years the CN has operated through 26 US presidential terms, 21 Canadian Prime Ministers, 2 World Wars, the toppling of Russia’s monarchy, China’s industrialization and formation of a ‘People’s Republic’. Despite all the turmoil, CN has seen tremendous success in growing freight volumes, operating income and benefits to employees.

We dug out CN’s operating and financial metrics dating back to 1923 - in that 101-year period freight revenue grew +4.5% CAGR and operating income ~9% CAGR driven by a roughly 30 basis point p.a. improvement in margins. At the same time, wages grew nearly 5% p.a. making the productivity gains even more impressive. Driving these metrics were 15 company presidents over the journey, starting with government bureaucrats who were forced to manage the needs of rail bankruptcies and wartime shipping efforts giving way to professional operators like the legendary Hunter Harrison. 2024 was an unusually disruptive year for CN which faced the worst operating environment in a decade. Managing on the ground operations for the year was Chief Field Operating Officer Derek Taylor, a 25-year veteran at CN.

A highlight of our recent 2 week visit to the US was the two hours we spent touring CN’s Kirk Yard in Gary, Indiana with Derek and his team, with three key aims: firstly, to test our conviction on the management quality of CN. Second, to better understand the operational challenges last year and how the Kirk Yard is a key element of debottlenecking the network. Finally, to understand how CN is positioning itself for volume growth.

The standard of talent and training at CN is exceptional - Derek Taylor’s journey at CN has been a 25-year success story starting as a management trainee, moving through 11 different locations. A few key themes emerged in our time with him. Foremost, that Derek’s primary role at the railroad is to pass on Hunter Harrison’s gift to the next generation of railroaders - from the time he was a superintendent in Memphis, he had the opportunity to absorb the unfiltered lessons of Hunter that can now be passed on in the “Derek Taylor way” to his operating team.

In addition, the open communication at the railroads has never been stronger. Jim Vena (CEO of Union Pacific), Keith Creel (CEO of Canadian Pacific Kansas City) and John Orr (COO of Norfolk Southern) all sat under Hunter at CN and Derek Taylor worked with all of them. Given how interwoven the railroad networks are, the entire system and network benefits from these open backchannels. The level of knowledge Derek showed, and the respect he commanded from his team was a sight to behold.

2024 operations were the most difficult since the polar vortex of 2013 with labour uncertainty at the ports, nasty weather, a general rail strike in Canada and now anti-trade sentiments from its largest neighbour and trading partner. The key issue was not operating challenges per se, rather the uncertainty customers faced when choosing how to move their freight. CN remained flexible but robust enough to prepare for the volumes returning and 2025 faces much easier comparisons as customers return.

The future of railroads is not in cost cutting but in volume growth. CN’s operations are highly optimized - the last two decades have seen tremendous efficiency gains across the network. It is now ‘a game of inches’ to extract costs.

The playbook is to maintain the network efficiencies and grow, as ‘revenue growth is a force multiplier’ where margin expansion will be a function of revenue growth. It was quite the experience to talk through the network map with Derek and his team to whiteboard out where the bottlenecks to growth are and how they would spend capital to take in additional carloads at the yard.

Through our visit, the investment proposition for CN became even clearer and we observed several value latencies. This is a business that has survived and thrived for over a century with shareholders being handsomely rewarded since its listing. Today, the deep bench of talent at CN is operating the network well in the face of operating headwinds that are abating. With growth as top of mind for the company and the right leadership in place to do it, we are excited about the future of Canadian National Railway led by Derek Taylor.

Stock In Focus

Fund holding Games Workshop PLC (GAW) released a brief update in March stating that trading in January and February was ahead of expectations. Since investing in December 2023, the position is up +65% versus the index which is +12%. As a reminder the company owns fantasy and science-fiction intellectual property (IP) manifested through tabletop wargames and monetised through the sale of miniatures, paints and accessories as well as licensing the IP to digital content creators (e.g. video games).

Over the summer holidays the Portfolio Manager spent a focused period engaging more deeply with the Warhammer 40,000 hobby, the major sci-fi content IP owned by the group. This involved visiting multiple owned retail stores around Melbourne as well as several independent hobbyists, meeting with fellow tabletop gamers, attending a Comic-Con & role-playing game conference and purchasing ‘starter kits’ of miniatures, paints, brushes and tools. The period of focused work led to a few insights.

Firstly, that the hobby itself is thriving. Driven by the success of recent video game Space Marine 2 along with media coverage of the upcoming Amazon-led Warhammer series the stores were busy and many core miniature sets (such as the iconic Space Marines) and base paints were sold out across the local network.

Secondly the economic model is elite – the ecosystem and value in the IP allows the business to generate gross margins of +70%. They sell items that cost relatively little to make (the injection-moulded ‘sprues’ on which the miniatures come weigh just a few grams of material) yet can be priced very highly to hobbyists who are price insensitive. A box of 5 infantry miniatures or even a single ‘hero’ character model can fetch well over $100, while the 18ml pots of Citadel paint (models require dozens of colours to painted well) can cost $5-10 each. The collector must spend additional money on the Codex to get the ruleset for each ‘unit’, in the form of a physical book or a monthly app subscription. These are Hermes and Louis Vuitton-like gross margins.

Thirdly, the moat around the IP is incredibly strong. Unlicensed or generic miniatures can be bought cheap or even 3D printed, but the quality is inferior and the ‘geek snobbery’ of the gaming community would not tolerate unofficial models at a gaming night or painting competition. The range of Citadel paints is highly distinctive, and each shade of every colour has its use – from primers to base paints, shades to contrast washes, metallics and edge highlights. While there are several competing paint ranges, for all but professional painters who may stray non-Citadel for the odd application, most will stick with the Citadel colours displayed on the box art and encouraged through free paint guide apps.

Finally, the Portfolio Manager discovered that spending evenings painting miniatures turned out to be surprisingly therapeutic. In an age when many are experiencing attention span shrink from screen overload during both workdays and evenings, a hobby that is tactile and requires fine motor skills and an almost meditative focus is to be commended.

Painting these Space Marine Terminators required ~A$220 paint spend