Targeting recovering stocks to hit the jackpot

SMA Portfolio Award

Winner

DNR Capital Australian Equities High Conviction Portfolio

Finalists

Antares Dividend Builder Model Portfolio
Quest Australian Equities Concentrated Portfolio 

For DNR Capital, it is all about buying quality companies at attractive valuations. Chief investment officer and director, Jamie Nicol said his firm focuses on finding companies with a robust industry position, strong balance sheet and earnings strength, and proficient management.

“We’re looking for that valuation opportunity as well so we’re trying to find stocks which perhaps has got improving quality, perhaps if we repaired the balance sheet. Or we might find a good quality company that’s been de-rated because people are concerned about a competitor coming into the market, or simply where we think that sustainability of the earnings is being underestimated,” Nicol said.

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DNR Capital found opportunities in quality stocks that demonstrated improvement like Australian Lab Services, which repaired its balance sheet in 2016. .

The firm has been in the separately managed account (SMA) space since 2001. The US witnessed an explosion in SMA popularity post the “dotcom” period when investors lost money but it has taken some time for it to rise in popularity here. Nicol said this was driven by customer demand for transparency and visibility. 

“We’ve seen a number of major platforms such as the BT Panorama platform adopt and spend a lot of money developing out their capabilities,” Nicol said.

Antares co-head of equities, Glenn Hart said his firm qualified as a finalist due its belief that the pricing of individual stocks on the Australian share market can sometimes be inefficient. 

“We believe it is possible to take advantage of these inefficiencies to deliver potentially superior investment returns. This is primarily achieved by identifying stocks trading away from their underlying valuation by taking a longer term view than other investors, systematically conducting detailed bottom-up research, and ensuring the risk taken is commensurate with the expected return,” Hart said.

Following on the heels of Antares is fellow finalist, Quest Asset Partners, which decided a long time ago that the SMA format was superior to a unit trust format for advisers and investors because of the transparency and visibility of clients’ investment decisions.. The fund has only underperformed the market in two years out of the 12 years it has operated in the SMA space.

Director, Christopher Cahill said: “We’ve developed a stock selection process that is pretty rigorous and has resulted in us exceeding the market performance by 4.2 per cent per annum on average for each of those 12 years: a remarkable result”.