Bell Asset Management is hoping U.S. institutional investors look Down Under for upside returns.
The Melbourne, Australian-based global equity firm has looked to capaltalize on the shift from U.S. institutional investors –and emerging manager programs in particular-to focus on non-U.S. strategies.
“what we’ve been doing over the last 12 months is really focused on building our relationships with the emerging manager groups,” said Robert Sullivan, managing director for strategy and distribution.
The firm has already garnered one mandate through emerging manager-of-managers Progress Investment Management Company.
Bell is no stranger to U.S. institutions, which make up roughly 30% of its $1.2 billion in assets-largely from the Taft-Hartley space.
The firm was founded in 1997 and boasts a 15-year track record in global equity, returning 11% annualized gross-of-fees since inception as of Dec 31. Compared to 8.9% by the MCSI World Index.
CIO Ned Bell said the track record is important because the portfolio has been through market cycle, compared to others that have only operated in the bull market of the past eight years.
“It participates in the upside but has been defensive and resilient in the down markets,” he said of the strategy, which has an upside market capture of 107.65% and a downside market capture of 91.72%.
The firm focuses on high-quality companies that are trading at reasonable prices, investing only in those that have return on equity above 15% for three consecutive years. This approach narrows the investible universe to about 900 companies that are then researched to understand why they are profitable and how sustainable the profitability is, Bell explained.
The companies are evaluated for management, profitability franchise and financial strength and business drivers, narrowing the potential opportunities to roughly 250 companies that are then reviewed to identify those that are mispriced. Ultimately, the portfolio holds about 100 names.
“We are buying things when they are out of favor, but they are high-quality companies,” Bell said.
The firm’s strategy provides a complement to other global and international strategies, as the all-cap strategy has a focus on small-and mid-cap companies.
“From a client perspective, they see the growth potential,” Sullivan said, noting the small- and mid-cap “are in the sweet spot of the growth cycle.”
“You don’t have valuation risk or as much crowding risk that you see in the mega-cap stocks,” Bell added, noting that the firm also has a dedicated smid-cap version of the strategy that is offered and is beginning to attract interest from investor. “Frankly, you see more mispricing because of the way the sell side research industry is going. You see companies that are not being picked over as much as they would have been a few years ago.”
The firm’s research process takes advantage of that, as the investment team travels extensively, holding meetings with roughly 500 companies annually. “We do a lot of engagement globally,” Bell said, noting that when travelling, approximately 70% of the research is on small-and mid-cap companies.
Being outside the mega-cap stocks also provides a different exposure to the market that can benefit from the continued shift toward passive investing.
“There is a lot of momentum from passive ownership of those mega-cap stocks in the U.S. As a global manager, we can be much more flexible about moving the portfolio away from those mega-cap stocks,” Bell said.