H&G High Conviction Fund

The investment objective of the Fund is to provide investors with an annual return which out-performs the Benchmark, being 5% per annum. The Manager is targeting to provide long term performance of at least 15% p.a. (before fees) by investing predominantly in Australian Microcap companies listed on the ASX, whilst minimising the risk of a permanent loss of capital.

The Fund seeks to invest its capital in companies with a significant discount in the share price relative to perceived inherent value. These companies have superior fundamental prospects, yet negative external events have attracted a flight of investors. The Fund seeks to assist investee companies to demonstrate, grow and realise their inherent value. Shares in such companies will be purchased on the primary and secondary markets.

Bottom-up valuation: Investment selection commences with bottom-up stock selection. The Investment Manager spends considerable time meeting with management teams of companies, their suppliers, customers, and competitors. The Investment Manager tends to invest in companies run by passionate people committed to the long-term success of their companies. Microcaps run by teams composed of individuals who have substantial shareholdings in the business tend to be more driven, resulting in outperformance compared to career managers.

Macro drivers: The Investment Manager looks for companies with limited downside risk and significant potential return. The Investment Manager then identifies macro factors and trends which are affecting or have the potential to impact the company and determines where there is a large differential between market and inherent unlocked value.

Unique insights: The Investment Manager applies its unique insights in determining potential changes that could be made to the management of the company in order to unlock its true value. Historical financial results are only part of the picture.

Active management: The Investment Manager then actively engages with management in the formulation and implementation of strategic change and remains actively engaged with management.

The Investment Manager believes that the combined investment strategy, philosophy, and approach gives the Fund overall competitive advantages as follows:

“We are active investors:

• We work with management to develop and implement strategic change
• We engage with all company stakeholders to achieve strategic alignment
• We will occupy board positions where required to drive our change strategy

We search where others don’t:

• We focus on microcaps that are too small for most institutions
• To that end we intend to keep funds under management below $50m for the foreseeable future
• We believe small, concentrated funds can generate larger long-term returns

We meet challenges that others avoid:

• The microcaps we invest in have superior assets
• Usually, they’ve been adversely impacted by non-operational externalities
• These influences tend to cause uncertainty and under-valuation”

The Fund may be suitable for investors seeking capital growth through exposure to Australian Microcap companies, with a long-term horizon and a higher risk tolerance.