In the September 2025 Quarterly Report Chief Investment Officer, Steve Johnson, asked a simple question. “With optimism spreading, should our concern levels be rising?” It captured the mood in the team at the time. When confidence becomes widespread, caution becomes more important.
Here at Forager, the investment team has been proactively and successfully preparing both Fund portfolios for potential market volatility by raising cash and shifting toward defensive businesses. This puts the Funds in a position to capitalise on opportunities when they emerge. Might we get our chance soon?
Preparing Our Portfolios for More Turbulent Markets
Long before any volatility appears on screens, the investment team is already doing the work behind the scenes. That preparation has been underway for some time. We have been trimming or exiting positions that have run too far and taking profits when prices no longer reflect long-term value.
Two very clear examples come from the Forager Australian Shares Fund. Catapult (CAT) and Bravura (BVS) were both strong contributors to returns this year. We sold out of both when their valuations became stretched. Not because the businesses had deteriorated, but because the prices no longer made sense for patient, long-term investors.
We have also been lifting cash levels in both portfolios so we have the ability to act when opportunities return. Alongside that, we have tilted both portfolios towards some steadier, more defensive businesses that tend to hold up well when things get bumpy.
This is not about forecasting. It is about being ready. Our approach relies on a disciplined process. When good businesses become too expensive, we step aside. When they fall back to sensible prices, as some are beginning to do, we want to be in a position to own them again. Flexibility is a key part of our investing philosophy and holding a little more cash gives us room to move when the right chances appear.
Not all share price falls are created equal
Although we are nowhere near peak pessimism, there have been enough recent moves to suggest a shift in tone.
Some companies fall because their underlying businesses are simply not good enough. Weak balance sheets, poor strategic decisions or ineffective management eventually show up in the numbers. When these prices fall, they often stay low. We aim to avoid these businesses altogether.
Then there are the much better businesses. The ones with strong fundamentals, loyal customers and the ability to grow for many years. Prices for these companies can fall too, usually for reasons that have little to do with the underlying business.
Sometimes they have simply run too far ahead of their actual earnings. Sometimes short-term sentiment takes over. The underlying business remains sound but the share price takes a hit.
Since our exits, share prices for both Catapult and Bravura have fallen around 25 to 30%. They have plenty of friends at the moment. Life360 (360) has been on a similar journey. While we owned this company for a while back in 2020, we missed its most recent ascent. The business has grown and improved and we would love to own it again, at the right price.
Internationally, we are seeing a similar pattern. Index returns look healthy on the surface, yet many individual companies have been hit hard. The headline numbers are being propped up by a small group of winners, particularly in the Nasdaq 100, where 15% of companies are trading at levels more than 50% below their all-time highs.
This is exactly the sort of cycle we hope for. Strong businesses become expensive, we exit, then a pullback gives us a fresh look.
Get ready, get excited
Even after their recent pullbacks, share prices for Catapult, Bravura and Life360 remain well ahead this calendar year, up 36%, 15% and 75% respectively. Whilst there have been some cracks emerging, this is nowhere near peak pessimism. What matters is that we are ready if conditions do become more challenging. Let’s hope that these cracks become craters so we can put that cash to work.
DISCLAIMER: The Trust Company (RE Services) Limited (ABN45 003 278 831, AFSL No: 235150) is the responsible entity and the issuer of the Forager Australian Shares Fund (ARSN No: 139 641 491) and the Forager International Shares Fund (ARSN No: 161 843 778). You should consider the product disclosure statement (PDS), prior to making any investment decisions. The PDS and target market determination (TMD) for both Funds can be obtained here. General advice only and does not take into account the objectives, financial situation or needs of investors. Past performance is not indicative of future performance and the value of your investment can rise or fall.