Flinders Investment Partners Portfolio Manager, Richard Macdougall talks about the Flinders Emerging Companies Fund, its approach, largest positions, sector overweights and performance.
Jessica Amir: Hello, I’m Jessica Amir for the Finance News Network. Today I’m with Flinders Investment Partners Co-Founder and Portfolio Manager, Richard Macdougall. Hello Richard, good to see you again.
Richard Macdougall: Good to see you Jess.
Jessica Amir: For those who haven’t heard of Flinders Investment Partners, just give us an introduction.
Richard Macdougall: Flinders is a single focus, one product Emerging Companies Fund. So that is a Fund that invests outside the top 100 ASX shares. It’s a very risk oriented portfolio, it’s a portfolio of companies that makes money and are growing. And that’s our focus. We have generally about 40 stocks in the portfolio. And we look at it, as an ideal investment for someone that wants exposure to small caps, such as a self-managed superfund or someone else as part of the growth portfolio.
Jessica Amir: Why do you have the house view and a strategic focus on emerging companies, and what makes them so attractive?
Richard Macdougall: Small companies don’t want to stay small forever, they want to grow. So we focus on growth and the management’s ability to help that growth. Companies enter the ASX, because usually they’re raising capital and ultimately that’s often, because they want to grow. So we look at companies that can do that, a management team that’s good enough to execute on that. And then the last thing we look for is an attractive price.
One of the fundamental parts of our process is actually meeting with the companies and understanding the management. How they are running their companies and then ultimately doing our own financial modelling and valuing those companies. Because if you have got a valuation and a share prices that’s the gap we want to exploit and that creates the returns to our shareholders and our investors.
Jessica Amir: Now let’s dive into the Fund in a little more detail Richard. How is the Fund composed?
Richard Macdougall: We tend not to have too many biases. But, at the moment, if you’re asking about some areas that we’re exposed to. Tourism is one area that we have a number of stocks. Such as Webjet Limited (ASX:WEB), Corporate Travel Management Limited (ASX:CTD) and Sealink Travel Group Limited (ASX:SLK), but also industrial services.
So Seven Group Holdings Limited (ASX:SVW), which owns the Caterpillar franchises and also the Coats Hire business and NRW Holdings Limited (ASX:NWH), which is a large contractor to the infrastructure and resources sector. With the tourism sector, it benefits from the lower Australian dollar. We’ve seen an uptick in inbound tourism over the last couple of months, after a pause for the previous six months. So we think that’s a good sector to be exposed to. And as for industrial services, with infrastructure spend, mining volumes are increasing quite significantly. We think that’s a good position for these companies to actually grow with that expenditure, and make good returns.
Jessica Amir: Just as a reminder, how do you manage the Fund?
Richard Macdougall: The Fund itself, we generally have between 38 and 43 stocks in a portfolio. So at the moment, we have 39 stocks in the portfolio. We never have more than five per cent of the Fund in one stock. We don’t actually hold much cash; it’s more for just buying a stock or selling a stock. So our maximum cash position is 10 per cent. So we’re generally fully invested in the small cap portfolio.
Jessica Amir: Tell us about its performance?
Richard Macdougall: Performance has been strong over the last three years. We’ve only been going for 3.5 years, but we’ve averaged close to 14 per cent per annum over the last three years, after fees. The last 12 months has been slower, it’s only around four per cent, but both those figures are ahead of the index.
Jessica Amir: What’s your outlook in the small and emerging cap space?
Richard Macdougall: We actually think the economy won’t be in bad shape in the second half of this year. That might be a minority view, but we think that the banks will start to be more open with their lending, financing will become easier for small companies. That’ll make a very large difference. So we think there’s opportunities for these companies to grow. The valuations aren’t expensive and we think there are some terrific opportunities to be had, over the next six to 12 months.
Jessica Amir: Just lastly Richard before we let you go. Is there anything that you’d like to leave with investors today?
Richard Macdougall: Yes, I think the message we’d like to leave is that small companies is an obvious place to be over the next 12 to 24 months. Mainly because there is so little growth available in the large companies at the moment, it’s small companies where people can access that growth. So that is a focus for us, we don’t think the market is that expensive in parts of small caps. So we think there is still terrific opportunities for our investors.
Jessica Amir: Richard Macdougall from Flinders Investment Partners, thank you so much.
Richard Macdougall: Thanks Jess.