Flinders Investment Partners' small caps approach

Funds Management

by Jessica Amir

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Flinders Investment Partners Portfolio Manager Richard Macdougall covers what’s new and exciting at the firm, what to expect with the Federal Election and provides insights into the company's small and emerging cap strategies.

Jessica Amir:
Hello I’m Jessica Amir for the Finance News Network. Today I’m with Flinders Investment Partners, Richard Macdougall. Richard, welcome to the Network.

Richard Macdougall: Thank you.

Jessica Amir: First up Richard, you’re the co-founder and Portfolio Manager of Flinders Investment Partners. Maybe you can tell us what’s new and exciting at your firm in 2019?

Richard Macdougall: Every year’s exciting in small companies, but I think this year with almost no growth out of large caps, we expect small companies to grow very strongly this year. So we think it’s going to be exciting. As for Flinders, we’ve just clocked up over three years, our performance has been strong. We have new positive ratings from investment consultants. So it’s looking like a very exciting year for us.

Jessica Amir: Now turning to the election in May. What does it mean for investors?

Richard Macdougall: There’s a lot to think about with a potential change of government. Obviously there’s tax policies, such as capital gains tax, potential tax or some pricing on carbon. There’re potential changes obviously to negative gearing. All of that can create quite some changes to the investment environment, but ultimately, it’ll boil down to confidence and growth. And we’re just focusing on companies that can grow over the next few years, and the environment that they can. And if there’re tax changes that help or hinder, we’ll take notice of those at the time.

Jessica Amir: Now to your offering Richard. Just walk us through your investment process?

Richard Macdougall: The Flinders Emerging Companies Funds focus on growth. Companies that can grow and will grow into the future, so that’s our main focus. But we also have a strong focus on management ability, to execute on that growth potential. We also, we model up virtually every company that we look at, as a potential investment and put a valuation on the companies. And use that as a benchmark against share prices. So growth, management, risk assessment and then a strong focus on financials are all really important parts of that process.

Jessica Amir: Now can you just take us through the portfolio in more detail?

Richard Macdougall: We’re benchmarked against the small ordinaries index and that’s Stock Number 101 to Stock Number 300. And our portfolio will always sit, majority sit, in that part of the market. We also have some smaller companies than that, but as I said before, they have to be making money. We have around 40 stocks in the portfolio and a minimum position in the stock, of 1.5 per cent of the portfolio. We don’t hold much cash; our maximum cash position is around 10 per cent of the Fund at any time. So effectively, we’re fully invested.

As far as the actual shape of the portfolio, we invest in any sector. We don’t disregard resources, we don’t disregard healthcare. We invest in all sectors as long as there’s a good investment opportunity. Our largest positions at the moment include stocks such as Service Stream Limited (ASX:SSM), Seven Group Holdings Limited (ASX:SVW), Gold Road Resources Limited (ASX:GOR), Bingo Industries Limited (ASX:BIN). So there’s quite a broad range of companies, if we look at some of the sectors that we’ve got exposure to. We quite like the tourism sector at the moment. So we have companies like Webjet Limited (ASX:WEB) and a number of others that are exposed to that part of the market.

With the tourism industry, it’s obviously benefitting from the lower Australian dollar. And we think that inboard tourism is only going to increase, with Chinese tourists and other Asian countries’ visitors coming here. So exposure to that industry and companies that can grow in that industry is quite attractive to us.

Jessica Amir: Just lastly Richard before we let you go. Is there anything else that you wanted to tell us today?

Richard Macdougall: Nothing apart from the fact that we strongly believe, that a small cap managed portfolio is a really important part of anyone’s growth portfolio, or anyone’s growth investment. So that’s all we focus on at Flinders, that’s the way we invest. We just have the one product and it’s total focus on small companies. We think with the upside to our investment opportunities over the next year or two, that there are still some great returns to be had out of small caps. We’ve had average 15 per cent per annum, over the last three years. But with that upside, we think we can continue to create really good returns for our investors.

Jessica Amir: We’re looking forward to seeing you grow. Richard Macdougall thanks for your time at the Interprac Financial Planning PD Day.


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