Filtering out the noise in small-cap markets: Ausbil

19 February 2024
| By Laura Dew |
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Speaking with current and former employees of a potential stock is one way that Ausbil small-cap portfolio manager, Andrew Peros, tries to retain an edge in his investment strategy. 

Appearing on Money Management’s Relative Return podcast, Peros discussed the benefits he brings as an active manager of the Ausbil Australian SmallCap and MicroCap funds. 

Being in active communication with employees is a way, he said, to filter out the noise about a stock and learn about the culture of a company beyond its financials. Having this data in-house at Ausbil means he can make quick, informed decisions at the right time to maximise alpha generation.

He said: “We are constantly doing deep dive work, not only from a macro perspective, but in terms of the stocks that we look to invest in. So we’re meetng companies, talking to suppliers, customers, stakeholders, and really trying to build that mosaic of the companies that we invest in.

“We even go as far as trying to tap into ex-employees, and you’re not going to get that value add from a passive fund.

“It’s amazing what you can uncover from ex-employees. It’s not always good news, but sometimes you are able to filter through the noise and some of the bad news to build a great picture. Assessing the culture of a company is a really great forward-looking indicator of where a company is heading.”

In light of the focus on a company’s culture and treatment of its employees, he holds a bias to founder-led companies with quality management teams. These types of companies are thought to take a longer-term view beyond the next earnings report compared to non-founders, and the founders may operate multiple executive roles.

“Within small-cap land, we are looking for those high-quality businesses with quality management teams. We have a strong bias to founder-led businesses and are looking for those companies where the founders have significant skin in the game, are capital light, have a high return on investor capital and can be self-funded through various cycles.”

Click here to listen to the full interview with Peros on the Relative Return podcast.


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