Ausbil Global SmallCap Fund Portfolio Managers Simon Wood and Tobias Bucks talk about the performance of the fund on its three-year anniversary, where it finds value, key holdings and the continued positive outlook for global small caps.Michael Luu: Hi. This is Mike Luu for the Finance News Network. Joining me from the Ausbil Global SmallCap Fund are Portfolio Managers Tobias Bucks and Simon Wood. Thanks, gents, for joining us today.
Simon Wood: Thanks, Michael, for having us.
Michael Luu: So what differentiates your global small cap investment strategy from the rest?
Tobias Bucks: Well, we're an active strategy. We believe judgement is really important to deliver excess returns in the market. And so the team, the people, is what really counts. Simon and I have known each other for a very long time. We're very good friends. We first started working together at Barings in the noughties in global small caps. And we've been doing this product here at Ausbil for over three-and-a-half years now with great success. We enjoy each other's company. We do think exactly the same way about stocks and markets, but we are very different people, and we've got very complementary skill sets, so that really does help us.
Simon Wood: As Toby says, we've known each other for a long time and worked together for a long time. Now at Ausbil, we're a team of three. We've got an analyst who joined the team recently, who came up through the Ausbil ranks. And we've also got that Ausbil backing and the support of Ausbil, which is really important. So, one of the things that differentiates ourselves is our focus on growth companies at attractive valuations, those niche leaders that are going to grow their earnings for many years, but at really attractive valuations. And we have an investment process built upon that that also includes ESG. And when you combine all those elements, we think you can deliver great risk-adjusted returns on a repeatable basis.
Michael Luu: So the fund has been in operation for three years now. How do you rate the performance of the fund over the past three years?
Simon Wood: So we're very pleased with performance. Performance could always be better, but we're very happy with what we're delivering. We've delivered 11.9 per cent net of fees versus a benchmark of 11.1 per cent annualised. So, very pleased with that performance, especially given the environment that we've seen over the last couple of years. We've seen obviously a big drawdown during COVID, but we've seen a strong bounce back in global small caps during that period. Global small caps has outperformed global mid and large caps since the COVID lows in March last year of nearly 35 per cent.
Michael Luu: On to you, Tobias. Let's hone in on the portfolio now. Can you talk us through the processes you follow to identify investments?
Tobias Bucks: Simon and I have been doing global small caps for a very long time. We've employed the same process that we've improved. And what that does is enable us to find a lot of unique and organic ideas that we come up with ourselves that we research. What Simon and I are really focused on is providing an emerging global titan and finding unrecognised growth in that emerging global titan. We want a business that's a niche leader, expanding globally, both geographically and also in the way products are used, vertically integrating and improving its management team. So, we like to use the analogy of CSL
(ASX:CSL). We haven't held that in the fund, but CSL is an emerging global titan. It's been a great stock for the last 25 years because it's been a niche leader that's expanded globally. And those are the types of businesses that we invest in. We look for the next Amazons, the next Googles, the next CSLs.
Michael Luu: So, Simon, let's talk about portfolio composition now. What positions are you most excited about?
Simon Wood: Well, one of the positions we're most excited about is Capcom (TYO:9697), which is the Japanese game manufacturer. It's had a long history of producing great-quality games. At the moment, its two big franchises are Monster Hunter: World and Resident Evil. Its most recent release of Resident Evil has been very favourably taken by gamers globally. And we think one of the key things is, as it moves to more electronic downloads, it's not distributing via bricks and mortar shops anymore, it's very accretive for margins. And we think Capcom's ability to produce excellent games going forward with that increasing margins is going to be very, very attractive for the earnings of Capcom.
Tobias Bucks: So, we've held Generac (NYSE:GNRC) since the inception of the fund. It's still in the fund and still doing well. It's grown from a small business under 3 billion market cap to now over 20 billion, and is about to go into the S&P. And that's an emerging global titan that's become a global titan. We still think there's a lot of unrecognised growth. Value creation has been created by adding organically and through M&A a whole suite of products and expertise, not just in generators, but also smart grid technology, in wall batteries, the software and the controls. And they continue to build a full suite of services that are going to really benefit from a future move towards localised smart grids and the future of electricity generation in the US.
Michael Luu: And, lastly, before we let you guys go, could you discuss the outlook for the global small caps markets in the coming time?
Tobias Bucks: Yeah, look, we think there's a very favourable outlook for global small caps. As Simon has stated, we've seen very strong performance of the asset class over the longer term, and particularly as the economic cycles improved. When we look at a lot of data, like manufacturing PMIs, they continue to accelerate into expansionary phases, we've still got a lot of fiscal and monetary stimulus. So, we think the outlook is very robust for the near and midterm, particularly given that valuations in global small caps are a lot more attractive relative to global mid and large caps. And we see that playing out over the next few years.
Simon Wood: And following on from what Toby said, we think the opening up of economies post the COVID pandemic is going to be a really strong tailwind for global small caps. For instance, the UK is opening up on the 21st of this month, and we think that extra demand and that extra momentum into the global economy is going to be really positive for global small caps going forward.
Michael Luu: Thank you for your insights, gents, and congratulations again on the three-year anniversary.
Simon Wood: Thanks, Michael.
Tobias Bucks: Cheers, Michael.
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