The fully funded lithium player the market is yet to discover

Lithium and nickel. My co-portfolio manager, John So, has done a lot of work in this area and expects demand for both commodities to rise in step with electric vehicle development. For nickel, we like Western Areas on the basis that it’s (1) cheap relative to peers, (2) there are very few high-quality nickel deposits in politically stable jurisdictions and (3) there is M&A upside.

For lithium, we like Core Lithium (CXO). This one has escaped some attention because it’s outside the major notable global miners, but in fact Core has a well-developed project, fully funded with offtake. There’s a compelling value proposition to looking at Core now, before it starts production and begins to re-rate.

Have you undertaken any significant portfolio changes or repositioning?

In late 2020, we made the tactical decision to close any remaining short positions and stay substantially net long. This has allowed the fund to benefit from the equity market run-up during 2021.

In the last month, we have also made a 10 per cent allocation to companies that service the cryptocurrency sector. We think this is a significant growth area, and similar to other new technologies in their infancy, hasn’t been widely adopted yet. We expect this entire sector to grow, and one of the best ways to gain exposure to this is to buy companies, whether in Australia or offshore, that are the ‘picks and shovels’ of this emerging space.

What do you see as the biggest risk facing the Australian sharemarket?

History indicates to us that the period shortly after the conclusion of stimulus (monetary or fiscal) can be difficult as the economy reverts to a normal state but without that government support. Typically, you can experience lower growth and this may affect sharemarket sentiment. Of course, with the cost of money so low, it’s unlikely to affect the equity market materially. Whilst VP Capital isn’t a macro manager, our view on rates is they remain lower for longer.

What’s a stock you like that most people wouldn’t have heard of?

We are invested in an emerging company called Banxa, which is listed in North America, but based in Melbourne. Banxa is a payments company facilitating the exchange of fiat currency to cryptocurrency. As this space becomes more regulated, Banxa is well positioned to assist from a regtech and payments perspective. It operates globally, and currently processes about $1 billion in annualised transactions. We think transaction volumes will increase over time and the business model is scalable enough to generate material amounts of free cash flow, which is ultimately what’s important.

Any recommendations for a good bite in Melbourne?

Like many, it’s been mostly home-cooked meals lately. Once we are able to, I’m looking forward to getting back to West Lake, which is an old favourite of mine in Melbourne’s Chinatown, for some satay chicken and a Diet Coke. It has been around since the early 80s and there is real heart and soul to the place….