How We Manage Australian Small Companies
Investment philosophy
Quality, rigour, consistency.
We believe markets are inefficient and that bottom-up fundamental research can identify quality businesses trading below their intrinsic value. Quality is an enduring source of alpha and a key element of risk management in this market segment.
Our disciplined approach combines deep fundamental research with a rigorous portfolio construction framework and quantitative tools that support risk management and monitoring of factor exposures.
Macro and factor exposures are controlled so that portfolio outcomes reflect stock selection insight, not unintended external bets.
Quality as a philosophy
In small caps, the real work is not finding the winners. It is avoiding the ones that look like winners. Protecting capital is not a constraint on returns — it is the single biggest driver of them.
Quality acts as both an alpha source and a risk buffer. When macro and factor volatility rises, high-quality businesses with strong balance sheets and earnings stability are better placed to preserve and compound capital through the cycle.
An under-researched universe
The Australian small cap universe is significantly under-researched. Institutional capital concentrates in large caps, and analyst coverage thins materially below the ASX 100. This neglect creates persistent mispricings — and a genuine information edge for active managers prepared to do the work.
We cover companies that most managers overlook. Stock selection, not beta, drives returns in this segment of the market.
Our universe comprises listed small companies on the ASX and New Zealand (up to 10%), primarily outside the S&P/ASX 100 Index. This is a rich, under-researched opportunity set where active management and genuine research capability create a durable information edge.
IPO participation is permitted where valuations are attractive and quality criteria are met. No sectors are excluded from consideration.
What we look for in a company
We define a high-quality company as one with an attractive combination of:
Attractive valuation versus intrinsic value
- Management capability
- Balance sheet strength
- Business model durability
- Earnings stability
- Strong economic returns
Investment process
Disciplined, bottom-up, repeatable.
The investment process is grounded in fundamental company research. The team assesses business quality, management capability, financial strength, earnings durability and valuation to identify companies that meet the strategy's quality and return requirements. Quantitative tools complement this research by supporting portfolio construction, risk management and monitoring of factor exposures — helping ensure the portfolio remains aligned with the team's stock selection insights.
4-Step Process
Quality Assessment
Qualitative and quantitative factors identify high-quality companies with durable business models and strong economic returns. Business model durability, management capability, balance sheet strength and financial returns are all assessed.
- Profitability and return on capital
- Balance sheet strength
- Management quality review
- Business model evaluation
Fundamental & Valuation Analysis
Deep research develops a detailed view of earnings drivers, competitive position and downside risk. Stocks are assessed for disconnection between quality and intrinsic value.
- Earnings forecast models
- Free cash flow analysis
- Intrinsic value estimate
- Valuation discipline
Risk Assessment
Quantitative tools support monitoring of portfolio exposures, factor risks and overall balance. Macro, factor and idiosyncratic risks are assessed systematically across every position.
- Macro risk assessment
- Factor exposure review
- Idiosyncratic risk analysis
- Tracking error monitoring
Portfolio Construction & Monitoring
Position weightings reflect conviction, expected return, risk and liquidity. Quantitative monitoring ensures outcomes are driven by stock selection rather than unintended exposures. 30–70 stocks.
- Conviction-weighted sizing
- Liquidity management
- Ongoing position review
- Active rebalancing
Portfolio Construction
The portfolio is constructed to reflect our highest-conviction ideas, sized according to estimated total return, conviction, liquidity and index weight. Position limits and portfolio-level constraints ensure disciplined risk management at all times.
Position sizing reflects conviction, expected return, risk and liquidity. We do not use gearing. The portfolio is long only — reflecting our fundamental belief in the compounding power of owning quality businesses purchased below intrinsic value.
Quantitative monitoring ensures the portfolio remains aligned with the team's stock selection insights and overall risk framework.
Risk Management framework
Risk management is not a constraint layered on top of the investment process — it is embedded within it.
We assess three distinct risk dimensions systematically across every position.
Exposures to broad economic conditions, interest rates, currency and commodity cycles are monitored and managed at the portfolio level to ensure outcomes reflect stock selection rather than macro positioning.
Systematic factor exposures — including size, value, momentum and quality — are assessed to ensure the portfolio maintains a minimum 80% attribution to stock selection risk, with a maximum 20% factor risk.
Company-specific risks including management, regulatory, earnings concentration and balance sheet fragility are identified through fundamental research and managed through position sizing and portfolio construction.
5–9% tracking error target. Minimum 80% stock selection risk, maximum 20% factor risk — ensuring the portfolio's return profile is driven by research insight, not unintended factor bets.
