Microequities Deep Value Fund
For wholesale investors looking for long term capital growth.
The Microequities Deep Value Fund, launched in March 2009, is an open-ended unregistered Managed Investment Scheme designed for the Australian wholesale market.
The Fund invests primarily in Australian securities exchange listed Microcap and Smallcap companies, which at the time of initial investment are generally below a market capitalisation of A$2 billion.
If the Fund invests in an Australian securities exchange listed company which spins off an entity or relists on a foreign stock exchange, the Fund is allowed to continue holding the security.
The objective of the Fund is to identify undervalued Microcap and Smallcap companies, invest in them and, through a medium to long term commitment, attempt to deliver superior investment returns.
The Fund does not try to predict short term share price movements or the direction of the overall markets. The focus of the Fund is to identify Microcap and Smallcap companies with proven business models that have credible growth pathways and buying them for substantially less than what we consider to be fair value.
The Fund may also make an initial investment in companies with a higher market capitalisation, but these will be limited to no more than 20% of the assets of the Fund. This limit does not relate to investments in companies which had a market capitalisation of less than $2 billion at the time the Fund made its initial investment and which has subsequently grown above it.
At times, the Fund may invest in IPO securities that are due to be listed on an Australian securities exchange within 3-6 months, and have lodged a prospectus with ASIC. These investments will be limited to no more than 10% of the assets of the Fund. The Fund will be limited to investing no more than 20% of the Fund’s assets in any one security or company. The Fund will make investments with a medium to long term time horizon of at least 5 years.
The Fund invests only in cash and equities, and does not engage in derivative speculation. It will be permitted to hold other securities that are directly associated with a particular investment, such as options granted with a specific company issue. The Fund will not engage in short selling or stock lending, and will not hold financial debt of any kind.
- Fund Manager with a strong track record of outperformance and extensive experience in the asset class
- Value investing philosophy
- Access to capital market opportunities via participation in private placements and capital raisings
- Higher long term growth profile than large cap funds
- Opportunity to invest in under-researched Microcap and Smallcap businesses
- Exclusive access to Special Purpose Vehicles (SPVs)
- In-house research expertise and capability
- Management team members are significant co-investors in the Fund
- Early access to potential high growth companies
- Performance-based incentive for the manager
- Distributions may carry imputation tax credits
- Investments generally held for longer than 12 months thus delivering mostly discounted capital gains
Profile of Companies the Fund will Invest in
There is information asymmetry in the market for Microcap and Smallcap securities. Information asymmetry arises when one party has more or better quality information than the other. Stockbroking firms and investment banks generally produce research material for their clients in order to generate commissions from trading volume. They tend to cover mainly the largest 200-400 stocks listed on the ASX as these tend to have the largest daily volume of trading activity. By way of example, there are approximately 2,200 companies listed on the ASX, and many of these would not have been considered for research by brokers or other research firms. Hence, there may exist opportunities to profit from intrinsically undervalued and unresearched companies.
Additionally, many index fund managers tend to structure their portfolios to track or follow specific indices. These indices would cover the top few hundred stocks or a particular sector.
This can suggest that the index fund managers are investing in both well-performing companies and poor-performing companies simply to imitate the particular index. Microequities is a fundamental deep value investor focused on growing profitable companies with a performance track record and an undervalued share price. We use a bottom-up approach to investing. Fundamental analysis of companies is undertaken using various models and key indicators to value companies before consideration of inclusion for investment by the Fund.
We conduct research that includes information gathering from customers, suppliers and competitors. As part of the investment process, we conduct face-to-face meetings with the company’s senior management to gain valuable insights into the operations of the company’s business units, strategy, and plans. We will only invest in businesses that we understand and that have a historical track record of positive earnings.
The list below is a sample and is in no way exhaustive of some of the factors that may be looked at and taken into consideration when considering an investment by the Fund.
As each company is unique, not all factors below will be suitable to be taken into consideration for the purposes of a valuation model of the company.
- Companies with a well-established business model
- Companies generally should be EBITDA profitable for at least 2 years.
- Companies with low manageable debt or no debt are preferred
- High cash flow generating businesses
- Companies with high earnings visibility and disclosure
- Companies with a predictable future earnings stream
- Companies in a growing sector
- Companies that have a growth catalyst division, product or service
- Companies with a strong competitive advantage or brand name
- Companies with a stable management and track record of delivering value to shareholders
- Companies where management has a significant stake
- Companies with a reputable board of directors
This approach to investment necessitates a medium to long-term perspective and only under such an investment time horizon do investors capture superior capital generation.
The investment performance of companies invested in is regularly reviewed. We are in close contact with senior executives and management of those companies and their investment case is re-examined. Companies that have not yet met our investment criteria are also monitored. The world is a dynamic place and investment cases do change.
Microequities Asset Management Pty Ltd is the Corporate Authorised Representative (CAR) 462 438 and wholly owned subsidiary of Microequities Asset Management Group Limited (“Microequities”) holder of Australian Financial Services Licence (AFSL) number 287526.
Microequities was established in 2005 to exclusively research Microcap companies and become a highly specialised equity research firm within the Microcap asset class. This research legacy is a key attribute of the Fund, with specialised in-house research capabilities.
Microequities’ experience, method, process and knowledge of Australian Microcaps and Smallcaps place us in a unique position to invest in these asset classes. Other fund managers might manage a Microcap or Smallcap fund as part of a wide array of managed investment products. For us, it’s a core specialisation and part of our heritage.
Microequities has been researching and investing in the Microcap asset class for over 14 years. Many successful Microcap companies grow to become Smallcaps, providing us with a competitive advantage and a much deeper understanding of these businesses than single Smallcap investors.
Microequities Asset Management will be utilising predominately in-house research from our investment team. Many investment managers have limited resources dedicated to the research of Microcaps and Smallcaps, and have to either outsource this function or purchase reports on an as needs basis.
Microequities’ research capabilities and expertise have been developed specifically for analysing the Microcap and Smallcap asset classes. They include various valuation models that are applied depending on the type of business and in many cases can be a combination of several models.
Microequities has a very stable management team, no investment team departures since inception. Key investment management staff, including the Chief Investment Officer (CIO), have been managing the Fund since inception. Additionally, members of the investment team are co-investors in the Fund, with strong alignment of interests.
Carlos is the founder and current CEO of Microequities. He has worked in stockbroking, funds management, and investment research for over 20 years, and has been an individual investor in Australian Microcaps since he was 18 years old. Carlos has held various senior management positions in Europe, including roles as Head of International Securities at BM Securities, and at Banesto Bank (Santander Group). Carlos has been investing in Australian industrial Microcaps since he was a teenager. Upon his return to Australia he founded Microequities with a long-term vision of creating a value driven specialist Microcap and Smallcap Fund Manager.
Carlos holds a Bachelor of Economics from Sydney University, a Graduate Diploma in Applied Finance and Investment Analysis from the Australian Securities Institute and a Master in Applied Finance and Investment Analysis from the Financial Services Institute of Australia. Carlos is a director of Smartpay Holdings Limited.
Shuo is currently responsible for identifying and providing research coverage on undervalued microcap industrial companies.
Since starting investing at the age of 16, he has developed a fundamental approach to his analysis of companies in the market and is always on the lookout for new investment ideas.
Shuo holds a Bachelor of Commerce and Economics degree at the University of New South Wales (UNSW) and is a CFA Level II holder.
Relevant Documents
You should read the PDS, TMD (if applicable) or any Investment Memorandum (or other offer documents) related to this product before making an investment decision. These documents (if available) can be found at https://microequities.com.au/, or if this is a "wholesale investor only" investment, can be viewed by contacting the Product Issuer identified on the aforementioned website.
Statutory Statement
This offer of scheme interests is available to wholesale clients only. This product listing was vetted by and approved by the product issuer identified above before publishing. Investment Markets (Aust) Pty Ltd AFSL 527875 (IM) is not the issuer of the product.
General Disclaimer
IMPORTANT STATEMENT ABOUT YOUR USE OF THIS SITE
Information on this site is intended for Australian users only.
This site is operated by Investment Markets (Aust) Pty Ltd. (ACN 634 057 248) (IMA, we, us and our), the holder of Australian Financial Services Licence (AFSL) no. 527875. The content is provided solely for information purposes, is not a recommendation or an offer to buy or sell a security, and is not warranted to be correct, complete or accurate. To the extent permitted by law, neither IMA, its affiliates, nor the content providers (such as the issuers of securities who appear on the site) are responsible for any investment decisions, damages or losses resulting from, or related to, the content, data and analyses or their use. The investment products on this site and any statements made about them by their issuers are not vetted, verified or researched by IMA. The presence of an investment product on this site should not be interpreted as an implied endorsement of it by IMA. Certain content provided may constitute a summary or extract of another document such as a Product Disclosure Statement. To the extent any content is general advice, it has been prepared by IMA. Any general advice has been provided without reference to your investment objectives, financial situations or needs. For more information refer to our Financial Services Guide. To obtain advice tailored to your situation, contact a financial advisor. You should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement (or other offer document) before making any decision to invest. Past performance does not necessarily indicate an investment product’s future performance. The content is current as at date of initial publication and may not be current as at your date of viewing. For a more complete understanding of all the terms and conditions of your use of this site click here.