NovaPort Capital sets a high bar
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Australian equities (small cap) winner NovaPort Capital can thank its benchmark-unaware investment approach and concentrated portfolio for being chosen in this year's Money Management/Lonsec Fund Manager of the Year.
NovaPort looks for just two criteria before investing in a company, but they are demanding.
“We want to see 50 per cent upside, and we want to see it within three years time, and we want to see higher quality than the average company,” said co-principal Sinclair Currie.
Novaport only has 30 to 40 stocks in its Wholesale Smaller Companies Fund, which is concentrated compared to their competitors, Currie said.
Small cap managers need to avoid simply matching the index, he said.
“The small caps index is not a great representation of value or something you want to emulate – what you are looking for is trying to pick the future large caps, or the best quality businesses,” he said.
Rather than buying into a stock and then holding on to it, NovaPort sets out a target price for the stock before it makes an initial investment. Once the stock reaches that price target or exceeds it, it sells the stock and buys into another up-and-coming company.
Lonsec picked out the deep investment experience of co-principals Currie and Alex Milton, and a singular focus on small company management, as reasons for NovaPort’s nomination.
“Pleasingly, in a weak year for small cap market performance, the fund has delivered strong performance outcomes relative to benchmark in 2011,” the researcher said.
NovaPort is also more attractively positioned than many of its peers when considering capacity, Lonsec stated.
Hyperion head of Australian equities Joel Gray nominated the search for strong value as the reason the Small Companies Growth Fund was chosen as a finalist in the small cap category this year.
“When people are watching what they spend, both at the customer level where they’re spending less, and at the business level, where they’re watching their expenditure, then companies with strong value propositions do win market share,” Gray said.
Hyperion is uncompromising on its definition of quality, Gray said.
“We just disregard the rest, so we run with very concentrated portfolios,” he said.
That high quality should create a 20 per cent return over the next five years, Gray added.
Hyperion adopts a five-year view of the market, and plays to that short-term cycle.
The fund is prepared to look through market concerns, making its investment horizons a lot longer term than the overall market, Gray said.
Investing only in high quality stocks is why Investors Mutual was chosen as runner-up this year, according to senior portfolio manager for the Future Leaders fund Simon Conn.
Investors Mutual is founded on the belief that good quality industrial companies will outperform over a three-to-five year period, Conn said.
“We’ve come to a pretty volatile market, and these stocks are steaming out at the moment and presenting good value,” he said.
Resilient businesses with strong brands can continue to grow market share and to attain pricing power, Conn said.
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