This fund manager outperformed the Small Ords Index by 9.09%. Here’s how

If you were going to pick a year to launch a small caps fund, 2023 would probably not be at the top of any list. While the S&P/ASX Small Ordinaries Accumulation Index started to rally from October and continues to look strong, for a long period there, it was a blood bath. And yet, the Airlie Small Companies Fund was launched in April last year.

Portfolio manager Will Granger shrugs off the timing, noting that there will always be good years and bad years in the market. The fund actually had an excellent year, and returned  22.23% to March 31 this year. Perhaps the timing was even beneficial, if you consider it as a time arbitrage opportunity.

“There’s plenty of market participants who, out of fear of short-term underperformance, aren’t willing to take on certain sectors and companies where the short-term outlook might be a bit cloudy. Often that situation creates a lot of selling in that stock or sector, and for that reason, those opportunities can actually end up being the best long-term performers,” he says.

Granger focuses less on market activity, and more on the individual fundamentals of a company to create a concentrated portfolio of high-quality, small-cap companies. There are four factors he uses as part of his assessment:

1. Financial strength
2. Business quality
3. Management quality
4. Valuation

He views financial strength as the gateway hurdle.

“Even if you’ve got the highest quality business, with the world’s best management and the cheapest valuation, if there are question markets around the balance sheet, then all bets are off. There’s no downside protection there,” Granger says.

In the following Fund in Focus, Granger discusses how the fund works, the baptism of fire that was 2023, his four-factor approach to assessing stocks, and how to use the fund in a portfolio. He also shares one high-quality pick his approach has identified – and spoiler – it’s a consumer discretionary pick.

Fund profile

• Name of the fund: Airlie Small Companies Fund
• Asset Class: Australian equities
• Investment objective: to provide long-term capital growth and income through investing in Australian listed small companies.
• Link to fund page

Please note, this interview was filmed on 16 April 2024.

Time stamps

• 0:00 – Introduction
• 0:13 – The pitch for investing in the Airlie Small Companies Fund
• 2:23 – Reflections on launching in 2023
• 4:44 – Airlie’s four factor approach to stock selection
• 6:45 – Why consumer discretionary is the largest sector weighting
• 8:33 – Cash in the portfolio
• 9:23 – How to use the fund as part of an investment portfolio

An experienced team with a proven track record

Airlie is a specialist Australian equities fund manager which brings together some of Australia’s most experienced industry participants. For more information on the Airlie Small Companies Fund, please visit their website or fund profile below. 

Managed Fund

Airlie Small Companies Fund

Australian Shares

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