TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH FAIRVIEW EQUITY PARTNERS, EXECUTIVE DIRECTOR, MICHAEL GLENANEClive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me from Fund Manager Fairview Equity Partners is Executive Director, Michael Glenane.
Michael welcome to FNN. Can you start by introducing your Emerging Companies Fund?
Michael Glenane: Certainly. The Fairview Equity Partners Emerging Companies Fund has now been running for three years. Our current funds under management are $125 million. Since inception per annum, we have returned to our investors 14.3%. This compares per annum to 3.9% for the Index which we are tracked against. We are very happy with our performance.
Clive Tompkins: Good thanks Michael. So how many managers make up the team and where were you before setting up Fairview?
Michael Glenane: Yes, there’s three of us at Fairview- myself, Chris Adams and Leigh Cronin. And we worked together previously at Goldman Sachs JB Were Asset Management for a number of years.
Clive Tompkins: Good thanks Michael. First up, what style of stock selection does the Fund employ and typically, how many stocks are in the portfolio at any time?
Michael Glenane: Clive we regard ourselves as a core manager. We are neither restricted by being a growth manager or a value manager. We believe that we try and pick stocks within a sector which give good returns to our investors. On average, there are about fifty stocks in our portfolio at any one time.
Clive Tompkins: And Michael, do you restrict the Fund to investing only in companies from within the Small Ordinaries Index?
Michael Glenane: Our primary focus is that Index and that’s defined as stocks from 100 to 300. Below that you’ve still got approximately 400 stocks which are investible, but realistically we do focus where the Small Ordinaries resides.
Clive Tompkins: Good and is the Fund fully invested or close to it most of the time?
Michael Glenane: Yes we are - our average cash holding is about 1.5%. We believe that our investors, once they’ve made the decision to invest with us, want to invest in small-caps rather than in cash.
Clive Tompkins: Now Michael last year was initially a very good one for small-caps but much tougher recently. How are they priced relative to the big end of the market and what’s the earnings outlook for the next six to twelve months?
Michael Glenane: At the moment there’s not a lot of disparity between the large end and the small end, which we focus on with regard to PE Relatives. However, there’s a strong earnings growth profile advantage for the small companies. Approximately three times the only growth expected in Financial Year 12, versus the large end.
Clive Tompkins: Good Michael. So what is the key difference between stocks in the large and small Companies’ Indices?
Michael Glenane: Certainly. The key difference is with regard to the resource sector exposure. You get a far greater exposure to the emerging companies or the emerging market stories inside the Small Ordinaries Index. For instance, the resource sector exposure is 56% for the Small Ordinaries versus 31% for the large-cap or the ASX 100. In the ASX 100, you’ve got a lot higher diversified financial exposure. Inside the Small Ordinaries as a point of difference, the largest exposure is actually gold at about 14% at the Index.
Clive Tompkins: So which stocks have made the most money for the Fund over the last year?
Michael Glenane: Clive we’re very happy to say that we’ve had a large spread of positive contributors to the Fund over the last year. Three stocks have done particularly well for us. The first one is Aurora Oil & Gas that is an unconventional liquids and gas play in the Sugarkane District of Texas in the United States.
The second one is Regis Gold. And Regis is a gold producer about 300 kilometres north of Kalgoorlie where they’ve got two deposits, both Moolart Well and Garden Well. And Garden Well is a very exciting recent discovery which they’re building a mill for at the moment. And our third good contributor was McMillan Shakespeare which is a salary sacrificed firm based in Melbourne, and clear market leader with regard to this industry.
Clive Tompkins: And what are some of your larger positions?
Michael Glenane: Because we’ve got a diversified portfolio, on average fifty stocks at any one time, with that we aim for risk control, not to have massive position sizes. At any one time, we’d probably at most have one stock above 4% active weight and three or four stocks above 3% active weight. Some of our big positions at the moment are SAI Global, Regis Gold, Aurora Oil & Gas, McMillan Shakespeare, Atlas Iron.
Clive Tompkins: Michael, investors seem preoccupied with risk these days. What might cause you to change your investment process?
Michael Glenane: We’re very comfortable with our process. Its survived tumultuous markets, both on the upside and also on the downside, and we’re very happy to report we’ve outperformed our Index on 29 out of 36 of the last months.
Clive Tompkins: And what’s your approach when you experience prolonged periods of weakness in markets?
Michael Glenane: We are very, very disciplined investors and we look very closely at the investment thesis which when we initially entered the stock, versus what is actually happening with that particular position at the moment. If that investment thesis is eroded, we will sell the stock. Otherwise we will continue to hold that position.
Clive Tompkins: Last question Michael. What sort of factors do you expect will dominate stocks within the Small Ordinaries Index over the next six months?
Michael Glenane: There’s been a lot of focus with regard to what’s happening in Europe. One thing that we would draw to investors’ attention is
what’s happening with regard to small resource stocks and the M&A cycle. The intensity of that has increased over the last six months and we still believe there’s real value.
For instance, in the gold sector which is the largest sector inside the Small Ordinaries Index, we’re seeing our forty gold stocks that we track, trading at 36% discount to Newcrest even though they’ll be producing 33% more ounces over the next year. There’s true value emerging in that area.
Clive Tompkins: Michael Glenane, thanks for the introduction and good luck with the next quarter.
Michael Glenane: Thanks very much Clive.
ENDS
