EV SMALLER COMPANIES FUND

EValuation Capital Management B.V. was founded in 2006 and manages the EV Smaller Companies Fund, a long/short equity fund of which the most important characteristics are:

  • actively managed concentrated ‘long/short’ equity portfolio;
  • consisting of shares of smaller quoted companies well known by the fund manager;
  • geographically focused on Dutch, Belgian and German companies; and
  • emphasis on risk management with balance between capital growth and capital preservation.

Smaller quoted companies

The EV Smaller Companies Fund invests primarily in smaller quoted companies (with a maximum market capitalization of € 2.5 billion). Many of these smaller companies are not well known and receive less attention from analysts, as income from transactions in these companies is much lower as compared to blue chip companies. Less attention means that the market for these companies is not as efficient and therefore offers more opportunities for conducting own fundamental research. The fund manager’s approach can best be described as ‘stockpicking’.

Absolute return

The portfolio is actively managed and makes use of ‘long/short’ strategies, combinations of ‘long’ positions (buying of shares that are expected to increase in value) and ‘short’ positions (selling of shares that are expected to decrease in value). The fund aims for absolute return and has therefore no benchmark.

Dutch, Belgian and German companies

The fund will only invest in companies that are well known by the fund manager. That is to say, with headquarters in the area, with activities the fund manager can understand and model and with a management team that is accessible. Hence the strong emphasis on companies from the Benelux and Germany. These companies often have a strong international profile (on average these companies generate half their revenues outside Europe) and thereby indirectly also offering global investment exposure.

Fundamental approach

The fund manager uses strict investment and liquidity criteria. On the basis of these criteria, out of a list of all European quoted companies, a ‘short-list’ is constructed. This is the investment universe of the fund and comprises some 200 companies. The developments of these are closely monitored by the fund manager, from research reports by brokers to interviews with the companies and its competitors, but also press releases and financial reports. A lot of emphasis is put on contacting the companies in the investment universe. The fund manager frequently talks to these 200 companies through company visits and by attending company presentations.

Concentrated portfolio

The fund manager looks both at qualitative and quantitative aspects. Quality aspects are the strategy of the company and quality of management. Within the quantitative aspects, a ‘discounted cash flow’ analysis is central to valuing a company. The portfolio comprises of companies from the investment universe. The ‘long’ side of the portfolio includes approximately 25 of the fund manager’s best ideas. The ‘short’ side of the portfolio includes companies the fund manager finds overvalued based on qualitative and quantitative aspects. Furthermore, the fund may use derivatives in order to reduce risks.

Balance capital growth and capital preservation

The fund manager puts a lot of emphasis on risk management whereby the combination of ‘longs’ and ‘shorts’ allows the portfolio to have a risk profile which lies substantially below that of the market. On balance, the position is usually not neutral, so that the portfolio will be sensitive to fluctuations in stock markets. The fund manager continuously tries to find a balance between capital growth and capital preservation. The fund manager aims for an average return in the medium term (3 to 5 years) of 10% per annum.