Forager learns from portfolio size mistakes

Forager Australian small caps australian small mid caps

14 May 2021
| By Laura Dew |
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Forager Funds Management is learning from earlier mistakes and hoping to rectify past underperformance by taking a disciplined approach to its stock picks.

In a webcast, chief investment officer Steve Johnson, said the Forager Australian Shares fund had gained $200 million in assets under management since being launched in October 2009.

The fund underperformed in 2020 and 2019 and Johnson said he was hoping his new perspective as chief investment officer (CIO) would help the fund to rectify mistakes.

Johnson was previously a stockpicker for the fund but his CIO role had allowed him to look at it from a different perspective which included selecting stocks for a range of market environment.

“Now I’m CIO with all the psychological pitfalls that contains, it has been easier to see other people’s ideas and recognise the risks than it was as a stockpicker. We want to have a range of stocks in the portfolio so that the portfolio can perform in a range of different environments. We don’t want to repeat the portfolio size mistakes that we made previously.

“In the early days, we could buy stocks at 30% fair value and sell them for 100% fair value a few weeks later. But now we have to take a larger stake as the fund has grown, it has become important to focus on the cost of illiquidity, how easy it is for us to able to get in and out and if it is a company that will pay out over a long period of time.

“We want to avoid owning any more than 20% of a business.”

The fund’s largest holdings were 8.9% in consulting firm RPM Global, 7.6% in fund administrator Mainstream Group and 5.3% in marketing agency Enero.

He said the fund was “close to a sensible size” to provide enough liquidity and that he hoped it grow organically.

Since inception to 31 March, 2021, the fund had returned 172% versus returns by the Australian small and mid-cap sector of 213% within FE Analytics’ Australian Core Strategies universe.

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