Regal Australia's long shorting experience wins out
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Long and superior experience in shorting stocks has led to fund manager Regal Australia being named as winner of the Australian Equities Long Short category in this year’s Money Management/Lonsec Fund Manager of the Year awards.
Part of Regal’s edge over its rivals is its long experience in shorting, according to chief investment officer Philip King the fund is allowed to short up to a maximum of 50 per cent of its assets, consequently reinvesting the proceeds into long positions.
“We are able to extract alpha on the short side as well as on the long side,” King said.
It’s more difficult for a lot of investors to extract alpha from short stocks, but the fund’s expertise has allowed them to find value even through the volatility, he said.
Regal’s short plays mean they need a strong stock-picking ability.
“Unlike many funds, the ability to short stocks means that more of our risk is stock-picking as opposed to just relying on the market to go up,” King said.
Regal also takes macro factors into account when picking stocks. While King asserts that the fund doesn’t have a top-down approach, they also don’t pick stocks blindly.
Regal benchmarks against the ASX300, with the top 20 companies making up the larger holdings in the company.
King also watches for changes that may cause the shares to be revalued, and watches the market for any mistakes it may make in investing.
“We don’t want to invest with consensus, we want to be a little bit contrarian,” he said.
Lonsec named King himself as a key reason for its award this year.
King has 17 years’ industry experience, with a strong heritage in hedge fund investing, Lonsec said.
He has also specialised in relative value and special situations, and held roles in sell-side research at Macquarie Bank.
In contrast to Regal, finalist Perpetual uses their expertise to construct the long side of the portfolio first.
“From that process, it leads you to a universe of stocks that I guess are the starting point for the short portfolio,” said portfolio manager Paul Skamvougeras.
The long portfolio needs to be comprised of high quality and value stocks, while what is left over can be used as the starting point of their short portfolio.
Perpetual applies a management test, an interest cover test, a recurring earnings test, and a business quality test to screen out companies that are not appropriate for investment, Skamvougeras said.
The stocks that are accepted are further refined by Perpetual’s analysts, ranking them against their universe of stocks. The portfolio manager will then make a final decision on what stocks to include in their portfolio.
Perpetual has managed to outperform as a manager across all time periods because of that strong process, Skamvougeras said.
Finalist Smallco Investment fund focuses on the $100 million to $500 million market capitalisation to find bargain value in the market, managing director Rob Hopkins said.
Larger companies are usually well researched and therefore properly priced, he said.
The fund’s researchers spend most of their time on fundamental research to choose the companies to invest in, Hopkins said.
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