Here’s what stocks the big players in small cap fund management are holding
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Stockhead regularly covers purchases and sales of small cap stocks made by fund managers. Every Thursday in Trading Places we recap all the moves in the last week.
But who are they, what do you need to know about them and why is this such a big deal?
Most small cap fund managers operate similar to the big Wall Street banks, Goldman Sachs & JP Morgan. They take on board clients and invest their money with the hope of a return.
While larger firms will have a wider range of options such as fixed income securities and ETFs, small cap fund managers are focused on small cap companies. They may invest in their own right or through one of their funds.
Whenever fund managers become substantial holders (over 5 per cent) they must file a notice with the ASX and declare any changes of ownership until they fall back below the 5 per cent threshold.
If they spend millions of dollars on a stock, they evidently think those stocks will gain them a return. No fund manager will invest in a stock they think will generate losses.
If you keep a track of all substantial holder notices you will notice familiar names show up over and over. Stockhead has looked into some of these fund managers – here are seven of them.
Regal Funds Management – This Sydney-based firm was founded in 2004 by former Macquarie analyst Phillip King, and holds over $400 million of small cap stocks. While its biggest sector is mining, with $160 million of its portfolio invested, it recently made a hefty profit on buy-now pay later stock Zip (ASX: Z1P). A few months ago their Zip holdings totalled $45 million.
But in recent weeks it has been selling their Zip holdings and has gone from 8 per cent to 5 per cent.
Another recent investment was in Kiwi education stock Evolve Education (ASX: EVO). Next month Regal will launch its first ASX-listed fund and this will be open to retail investors.
Spheria Asset Management – Spheria’s website declares it is a “fundamental-based investment manager”. It is run by ex-Schroders portfolio managers Marcus Burns and Matthew Booker. Its portfolio is around $256.5 million and includes City Chic Collective (ASX: CCX) and Mortgage Choice (ASX: MOC).
Paradice Investment Management – This fund manager, run by David Paradice, is not exclusively a small cap fund manager but has a dedicated small cap team. Its portfolio is $1.1 billion and includes Fleetwood Corp (ASX: FWD), Senex Energy (ASX: SXY), Western Areas (ASX: WSA) and Silver Lake Resources (ASX: SLR).
Yarra Funds Management – This Melbourne based firm has share holdings around $1.2 billion although it also offers its clients fixed income investments. It was only established in 2017 after its current senior management bought out Goldman Sachs’ Australian-focused investment platform.
While its holdings include plenty of large caps, it holds some small caps including Adairs (ASX: ADH), Baby Bunting (ASX: BBN) and Resmed (ASX: RMD).
Wilson Asset Management – Wilson is one of the larger fund managers, claiming to invest on behalf of 80,000 shareholders. Its boss, Geoff Wilson, is an industry veteran who has run the firm for over two decades and led the fight against changes to franking credits last election.
Its portfolio includes Myer (ASX: KYR), Noni B (ASX: NBL), Keybridge (ASX: KBL) and Funtastic (ASX: FUN).
Celeste Funds Management – Celeste is an award-winning fund manager. While all fund managers want to make money, Celeste specifically target returns of at least 5 per cent above the S&P/ASX Small Ordinaries Accumulation Index over rolling three year periods. Among its holdings are City Chic Collective (ASX: CCX), Think Childcare (ASX: TNK), Lycopodium (ASX: LYL) and The Reject Shop (ASX: TRS).
Naos Asset Management – Naos only employs seven people but has $300 million in assets and three listed investment companies. Its focus is on the industrial sector and it proudly boasts of ignoring of any indexes, arguing it would force them to hold some stocks it may not believe are attractive investment propositions.
Among its holdings are Japara Healthcare (ASX: JPR), Big River Industries (ASX: BRI) and Motorcycle Holdings (ASX: MTO).