High-conviction pays for ASAM

For boutique Australian equities fund manager, AdamSmith Asset Management (ASAM), the secret behind its success lies with the founders’ two decades of experience in small caps.

Despite perhaps being considered a small fish in a sea of larger fund mangers with only two principal products, including the small company fund, ASAM portfolio manager, Peter Mouatt, said the group’s track record is in performance.

“[The fund] has been going for over three years and as of February 2007 we’ve outperformed 9.4 per cent per annum,” Mouatt said.

“Both myself and Michael Glennon have had a continuous 25 year history looking at small caps. We’ve got pretty much a longer track record in small caps than anyone in the market,” he said.

Mouatt said another factor that cements ASAM’s crown as winner of this year’s Money Management/IMCAFund Manager of the Year Award 2007 in the Australian Shares Small Cap category is its long-term investment view.

“We’re long-term investors. We’re not short-term, so we’re not traders. Small caps require you to not just look at a business model, but to take a long-term view,” he said.

“The landscape always changes, as there are many themes that keep recurring. A lot of technology has changed dramatically [though] we’ve been enthused by companies that can adapt.”

Mouatt said because the group’s investment decisions are made with a long-term perspective, stock turnover is expected to be relatively low. This perspective, tied with the group’s experience, in his view was a clear differentiator.

“Both make us very different. We’re quite diligent about evaluation techniques. We spend a lot of time analysing financial statements and 10-year DCS,” he said.

ASAM’s small company fund is benchmarked against the Small Ordinaries Index while maintaining a high conviction approach.

The portfolio aims to significantly outperform the Small Ordinaries Index over meaningful time periods. The cash weighting of the portfolio can never be more than 10 per cent and weightings in individual stocks will not exceed 8 per cent.

Mouatt and Glennon founded ASAM in 2003. The firm is 70 per cent owned by employees, with 30 per cent capital backing from an offshore investor.

Runners up in the Australian Shares Small Cap category are Renaissance Asset Management, Eley Griffiths and Pengana Capital.

Renaissance head David Fleming attributed the company’s nomination to a close-knit team prepared to put in the hard yards.

“We’ve got a solid team that spends time on the road looking closely at companies,” he said.

Boutique Eley Griffiths co-founder and principal Brian Eley credits his group’s success to teamwork with co-founder Ben Griffiths.

“We like to think we know where the land mines are and that we stick to a disciplined approach,” he said.

Pengana is a finalist for the second year in succession, with manager Steve Black attributing it to a hands-on approach and an extensive visitation program.

“There is no substitute for a hand’s on approach,” he said.

“That is something you simply have to do.”