Regal produces the second best overall return in the industry (52 per cent year-on-year) amid them finding ‘extremely interesting businesses’, Jessica Amir writes.
A fund manager who produced the second best overall return in the industry, with 52 per cent year-on-year, according to Money Management’s Investment Centre, is confident they’ll continue to outperform the market over the coming years, on the back of small caps growth.
Regal Funds Management’s small caps fund outperformed the S&P ASX Small Ordinaries by almost 49 per cent year-on-year, as they found a number of “extremely interesting” small and growing companies that were “unappreciated by the market”, the fund manager said.
Regal Asset Management portfolio manager, Todd Guyot, said they found companies with robust growth prospects that were well managed.
He said the companies had strong earnings upside, regardless of the market’s low growth, so they bought in. But then the market discovered them too, the companies prices were re-rated, and that pushed the prices up, he added.
“We were lucky enough to find a lot of those,” he said.
Another portfolio manager, Mike Bassett, said they started the fund over a year ago, as there was a massive opportunity in the market, with fewer brokers researching and investing in small caps, despite the massive influx of IPOs.
“All of a sudden there were 100 or 200 stocks to invest in… which gave us better opportunities to find alpha returns as the market go up to speed,” Bassett said.
The fund held no more than 65 stocks, so they could concentrate on “getting returns” and “not take on too much inherent risk”, he said.
So for example, just one of those companies that they found and invested in, “went from I think when I first saw it, about a $100 million company, to a company worth over two billion dollars”, he said.
The fund managers also attributed their success to holding short stocks.
“We run what they call a one 30, 30 fund. So we actually have 30 per cent short and we try and make money out of those at the same time, and that gives us a little bit more defence,” Bassett said.
The small caps space was extremely interesting, as you could find incredibly diverse businesses, he said.
“A lot of the businesses have been founded by people we meet. Their management teams have been in these businesses for 10-20 years. So they know them back to front. And they’re passionate about them because they’re their businesses. And that allows us to really get close to these people and invest with them over time as they grow,” Bassett added.
So for investors, is to too late to jump in and ride on their coat tails? Well, Regal said they were confident that they would continue to “outperform the market over the coming years” and “deliver good performance”.
But, they could not guarantee it would happen every month.
According to Money Management’s Investment Centre, Select Baker steel gold was the best overall performer in the market, with a 73.3 per cent return year on year, Regal Australian small companies came in second (with 52 per cent), SGH small companies was third (with 46.3 per cent), EQT SGH wholesale emerging companies was forth (46.3 per cent) and EQT small companies was fifth (44.1 per cent).
