New small cap boutique wary on resources

Avoca Investment Management the new small cap boutique that is the brainchild of former UBS small cap managers Jeremy Bendeich (pictured) and John Campbell, will not be relying on a predictable bet on resources to generate alpha.

“When the benefits of resource boom are behind us and terms of trade have normalised, what industries are we left with [to invest in]?” asked Campbell.

Campbell said valuations had dropped considerably in markets such as domestic industrials such as retail and consumer discretionary. When conditions do normalise the value should still be there in those sectors, he added.

The Avoca fund, which has the backing of Bennelong Funds Management, will target the universe of stocks outside the ASX top 50. It will have a fairly concentrated position, generally holding between 35 and 40 stocks, and will target returns in excess of 3 to 5 per cent above its benchmark, Bendeich said.

The fund has had considerable interest from several parties but will not start seeding capital until 1 July. The main investors being targeted include self-managed super fund trustees, high-net-worth individuals and other advised investors, although there will be room within the fund for at least one institutional mandate in the vicinity of $50 to $100 million, he said.

Because there will be limited capacity within the fund, and a lot of the high quality small cap funds are already full, Bendeich anticipated strong demand and said the first institution that came on board would be likely to get a better deal than those who follow.

Avoca has not yet set a maximum capacity for the fund although Bendeich said it can be hard for a small cap active manager to continue to generate strong returns once funds under management (FUM) grows past $1 billion.