Transcription of Finance News Network Interview with Pengana Global Small Companies Fund Investment Manager, Lizard Investors Chief Investment Officer, Leah Zell and Co Portfolio Manager, Jon Moog Lelde Smits: Hello I’m Lelde Smits for the Finance News Network. Joining me from Lizard Investors are its Chief Investment Officer, Leah Zell and Co Portfolio Manager, Jon Moog.
Lizard Investors LLC are the investment manager of the recently launched Pengana Global Small Companies Fund. Leah, Jon welcome to Australia.
Leah Zell: Thank you.
Jon Moog: Thank you Lelde.
Lelde Smits: Leah for investors not familiar with the Fund, could you start by providing a brief overview?
Leah Zell: We invest in small to mid cap equities globally outside of Australia. And we believe, that the best way to invest in small cap equities is to look for asymmetric opportunities, really outliers that we think can perform. We have a huge universe; we want to be very selective about what we buy. And we buy between 30 and 50 names and concentrate, and get to know them extremely well.
Lelde Smits: Jon, what is the composition of the portfolio?
Jon Moog: Currently the portfolio is made up of about 30 investments, and there’s no geographic or industry concentration at the moment. It’s a pretty broad baseddiversified investment.
Lelde Smits: What’s the rationale behind this structure?
Jon Moog: Right now the rationale, always our rationale, which is fundamental bottoms up value oriented investing.
Lelde Smits: Jon, what are some of the larger positions in the portfolio and why do you hold them?
Jon Moog: Some of the larger positions in the portfolio currently, one is a company in Japan called Broadleaf Company Limited (TYO:3673). It’s the largest aftermarket, auto parts database in Japan, has 70 per cent market share, has a dominant market position. And is growing their transaction business over time, which should create a lot of value.
Lelde Smits: Could you provide another example?
Jon Moog: We’re invested in an Italian credit rating business named Cenvat. We’re excited about the business, because we think it can compound value for a long period of time, generates a tremendous amount of cash flow. And we were able to buy it at 10 times earnings, which is something we think is of great value for the quality of business it is.
Lelde Smits: Thank you Jon and Leah, turning to the current market environment. Where have you identified opportunities to find great small cap investments?
Leah Zell: The advantage of being generalist and the advantage of being global is that we can be opportunistic. And we are opportunistic not in short term, we don’t worry about whether Modi is going to be elected in Italy - in India rather, or whether what’s happening with Greece for example, in Europe. But we can look at longer structural changes. So for example in Japan, there’s a huge push towards better corporate governance. So we can screen for companies that are working on utilising their cash balances better, and are improving their return and equity.
In Europe there have been many, many companies that have gone public that were owned by private equity, because after the financial crisis, it took a couple of years for these companies to be restructured and then floated. And there have been many opportunities where they’ve come public, the price has gone down, they’re very good companies but they’re trading at very attractive rates. Cenvatwhich Jon just talked about, is an example of one of those kinds of companies.
Emerging markets have been a bad place to be, but some of them are now moving into value territory and the companies are very good, but nobody wants to invest there. So Brazil is an example of a market that we have been out of for a number of years, but we’re now starting to see opportunities emerge.
Lelde Smits: Finally Leah, what differences have you noted in small cap markets across different countries?
Leah Zell: We invest in companies, in countries and in currencies and so I call it three-dimensional chess. I would not say that there is a particular country that we like more than any other country. But I think if you do what we do, you have to be cognisant of how the culture impacts how companies are run. And that’s part of what I think is the institutional memory that gives us a competitive edge in investing.
Lelde Smits: Leah and Jon, thank you for the update from the Pengana Global Small Companies Fund.
Leah Zell: Thank you very much, it was a pleasure talking to you.
Jon Moog: Thank you so much.
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