QVG Long Short Fund

QVG was founded with the aim of delivering strong returns by investing in smaller Australian listed companies. While our investors have been well compensated for the volatility inherent in a long-only small-cap strategy, we recognise the benefit of adding more weapons to our armoury both to enhance returns and manage risk. The Fund aims to give us these tools.

As an all-cap absolute return strategy, the Fund aims to give us full flexibility across the entire market by allocating capital to our best ideas regardless of size or index weight.

Historically, we’ve found that a natural by-product of our bottom-up stock-picking has been the identification of poorly performing stocks. The short-selling capability of the Fund unlocks these ideas as a potential additional source of profit and we believe this tool will be complimentary to absolute returns.

While returns can never be guaranteed, we believe we have developed the Fund with the right building blocks to allow us the opportunity to pursue superior returns for our investors and ourselves. This includes a collaborative decision-making environment, an eye to liquidity and capacity management, and a philosophy and process that has withstood the test of time.

Our goal is to deliver strong absolute returns to our investors while remaining aware of the risks we are taking to generate those returns. We believe our alignment and incentives – via our personal investment in the Fund and fee structure – are consistent with this goal.

Prospective investors should be mindful that despite the Fund’s ability to hedge and short-sell stocks, it is a long-biased equity fund and there will be a certain level of month-to-month volatility. The journey may be bumpy but we believe, should investors stick with the strategy, it could ultimately be a rewarding one.

We use a fundamental approach to stock selection and portfolio management. We classify ourselves as neither a ‘growth’ nor ‘value’ manager but would rather invest in growing companies at a value price. We place a heavy emphasis on the financial metrics of a company in determining its attractiveness.

Factors such as Returns on Capital, Balance Sheet Capacity and Cash Flow Conversion are closely scrutinised. Overlying this quantitative analysis are an assessment of qualitative factors such as management quality and alignment, key customer or supplier risk, predictability of revenue and earnings and the long-term vision of the company.

Finally, we use our experience to identify any potential catalysts or market-related risks to the investment thesis. This aids in determining an appropriate weight for the position and helps identify milestones at which we would increase or reduce the position.

Investors should expect the Fund to contain a portfolio of stocks which we anticipate overall will demonstrate above average returns of capital, below average balance sheet gearing and above average earnings growth. These conditions will be sought where possible from stocks trading at or below market earnings multiples based on our own internal estimates of the company’s future earnings growth.

This is where the QVG name comes from - Quality, Value, Growth. By holding companies with these characteristics in the Fund, we are starting with what we believe will be a robust portfolio of fundamentally sound companies.

Should these companies then meet or exceed our earnings expectations then we believe we have a recipe for strong, long-term performance.

The Manager seeks to identify investment characteristics that correspond with future investment returns, to hold long positions with above average exposure to these characteristics and to sell short positions with below average exposure to them.

Risk management is not achieved by a quantitative or formulaic process but rather is a function of a strong fundamental understanding of the companies in which we invest and the liquidity profile of the stock.

Volatility in Australian equities can be high. We are very mindful of how fund size and liquidity can impact performance and have structured the Fund with this risk front of mind.

The Fund has the flexibility to hold cash should the Manager not be able to find attractive opportunities. The ability to hold cash gives us the ability to move quickly when opportunities present themselves. The Fund uses leverage, derivatives and engages in short selling.

We construct a portfolio of best ideas across the entire market cap spectrum. Whilst we seek to balance exposure across all risk factors, we remain cognisant that unnecessary diversification will dilute our performance and ultimately detract from our best ideas.

The typical number of securities held ‘long’ will generally be in the range of 20-40. We expect to generally have 10-30 securities sold ‘short’ at any point in time.

The Fund will typically maintain a net market exposure (total long positions minus total short positions) of between 20% and 120%.

Gross market exposure (total long positions plus total short positions) will generally be below 300%.

Latest Performance Details.