Smaller quoted companies
The fund invests primarily in smaller quoted companies with a market capitalization of between € 500 million and € 5 billion. Many of these smaller companies are not well known and receive less attention from sell side 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’.
Long/Short
The portfolio is actively managed and makes use of long/short strategies, combinations of long positions (buying undervalued shares in order to profit from an expected increase in value) and short positions (selling overvalued shares which the fund manager does not own but are borrowed, and over time buying them back at a lower share price, thereby profiting from share price declines).
Benelux and Germany
The fund will only invest in companies that are well known by the fund manager. That is to say, with headquarters in the vicinity, 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 analysis
During the fundamental analysis of a company, both qualitative and quantitative aspects are being considered. The qualitative aspects focus extensively on the strategy of the company and the quality of the management. Within the quantitative aspects, the fund manager makes its own estimates regarding the future financial performance of a company based on its own model. The ‘Discounted Cash Flow’ method is central to the valuation of a company.
Concentrated portfolio
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 usually comprises 10-15 companies which the fund manager finds overvalued based on qualitative and quantitative aspects. Furthermore, the fund may use derivatives in order to reduce risks.
Investment objective
The objective of the fund is to achieve the best possible return at a risk that is significantly lower than the market risk and aims for an average net return in the medium term (three to five years) of 8% per year. The fund manager puts a lot of emphasis on risk management whereby the combination of long and short investments 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 the portfolio will be somewhat sensitive to fluctuations in stock markets.