Belief in stocks despite odds

Australian Equities (Small Cap)

Winner

Ausbil MicroCap Fund

Finalists

Hyperion Small Growth Companies Fund 
SGH ICE 

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Stocks that deliver earnings growth over and above consensus in the market have given Ausbil Microcap Fund the upper hand to win the Australian Equities (Small Cap) award. 

Despite the volatility experienced by the market, the fund has been disciplined in having the belief in the stocks even when things were going against it, according to the fund's portfolio manager, Tony Waters.

"We have a philosophy and process that we very much believe in and have been very consistent with. We are not particularly too benchmark aware on a micro caps base to decrease risk," Waters said.

"It's very much about picking quality stocks that are going to deliver earnings growth over and above consensus in the market and looking at financial features or metrics within the company that will give a good probability of doing that.

"Typically our portfolio has companies with high returns on capital, lower than average gearing on their balance sheet and typically on that basis of higher growth than average and the focus on finding that combination of a best possible price."

Waters noted that another reason for the fund's success was the fact that has the same two-person team since inception.

"We know quite intimately in terms of the thought process in what we look for. So we're aligned in that and can make decision on a very efficient basis and try and capture as much upside as we can in stock we invest in and very good support from Ausbil," he said"

Finalist Hyperion Small Growth Companies Fund attributed its success to investing in high calibre companies with a long-term view in mind.

According to Hyperion's managing director, Tim Samway, the fund had stuck to businesses that had very predictable earnings through low debt, high return on capital, sustainable competitive advantages, and organic growth options.

"Our definition of quality doesn't include small miners because we don't like commodity businesses as they don't have sustainable competitive advantages so they don't get through, and neither do small banks. We also exclude businesses that have done poorly," Samway said.

Last year's winner, SGH ICE, continued its success thanks to investing in business franchises that have assets that are difficult to replicate, according to its portfolio manager, Callum Burns.

"What we feel is if you invest in companies that have a sustainable competitive advantage meaning they have assets that are difficult to replicate, have sticky customers and you pay the right price, over time you have certain earnings growth and you'll deliver superior returns. That is our 10 year approach."