Deep value contrarianism: High conviction ASX opportunities for the sophisticated investor

Coming up next, we have Rob from Collin Street Asset Management.

Rob is the Head of Distribution and Investor Relationships since 2019.

Rob has a Master of Business Administration degree.

and is ADA2 qualified.

Collin Street Value Fund aims to preserve and grow the wealth of private investors and their families, both now and for future generations.

They have delivered an impressive 14% per annum net return since its establishment in 2016.

The bespoke combination of patience, conviction, freedom and objectivity is what they seek to achieve.

It's available to wholesale and sophisticated investors only.

And welcome Rob to the stage.

Thank you and good morning everybody.

Just bring the slides up here.

And thank you for the kind introduction.

As was said, I'm head of distribution and investor relations at Collin Street Asset Management.

And today I'll be sharing some insights into our flagship Collin Street Value Fund.

Now, before we go into the nuts and bolts of the fund, I'd first like to say that Collin Street Asset Management are a boutique wholesale asset manager, and our funds are available only to those people qualifying as sophisticated or wholesale investors.

Naturally, past performance is not a reliable indicator of future performance.

And if you are thinking about making an investment into the fund,

It's an important component of that, that you read the information memorandum in full and seek independent financial advice if you're unsure about any aspect of the fund.

So as was said, we do seek at Collins Street Asset Management to support private investors and their families as they seek to preserve and grow their wealth, both now and for future generations.

We recognize that our clients are typically people who have

built wealth throughout a career that they've developed over a lifetime.

They've built, managed and sold businesses.

And in many cases are stewards of their family's wealth.

And as the old saying goes, money is hard to make, but easy to lose.

And so for that reason, within our DNA is a focus on capital preservation.

Now that's not to say that things don't go up and down over time.

Certainly whenever you're investing in equities, that will occur.

But for us, it's about being very concentrated and setting the bar very high so that only our best and most compelling ideas offering the most attractive entry prices find their way into our portfolio.

And certainly as we seek to do this, we're not trying to make money one month to the next or one quarter to the next, but we do take a genuine medium to long-term approach in our thinking.

We're not seeking to trade stocks intraday or chase the latest shiniest unicorn on the ASX.

It's very much about doing fundamental deep research, investing only in our most compelling ideas and backing those with conviction in the fund.

It's important whenever thinking about a fund manager and certainly understanding their purposes as I've just articulated is important, but also to understand the people behind the fund.

Within Collin Street Asset Management, we're owned by our founders and the two key members of the investment team.

Michael Goldberg, who's our Managing Director and Portfolio Manager, and Vasilios Paparglin, who's our Chief Investment Officer.

Supporting them in an investment consensus and also in a governance capacity is Anton Lawrence.

Now, importantly with Michael and Vas as the two primary investment team members,

Whilst they have all the usual qualifications you'd expect of somebody operating in the funds management industry, what truly sets them apart and makes them unique is that they have built, managed, and sold businesses outside of the funds management industry.

And this has been done across global publishing, food and beverage, consumer services, and the like.

And so when Michael and Vas are looking at companies and looking at balance sheets, profit and losses, and so forth,

or even when they're engaging with a board of directors and C-suite executives.

They do so with a very pragmatic entrepreneurial and hands-on approach.

They're very inquisitive and are always looking for opportunities that a true business owner will be looking for rather than someone who would perhaps more of just a purely textbook approach to thinking about companies and balance sheets.

And so, as was said in our introduction, we have achieved within our flagship fund about 14% per annum net since 2016, which has been around about 5% per annum net above the market.

Of course, to get the type of returns that others don't, you've got to be prepared to do the sorts of things that others won't.

And at Collins Street Asset Management, we seek to challenge the status quo.

We have a saying in the office that it's important to feel comfortable being uncomfortable.

asking the sort of questions that others won't, doing your scuttlebutt and trying to find research insights and ideas in places that others won't.

And certainly being prepared to invest in sectors of the market, which are deeply unlocked.

And often that will be for emotional reasons rather than fundamental ones.

We also have a very strong view around alignment of interests and that that should occur absolutely every single step of the process.

be that between C-suite executives and shareholders, boards of directors and shareholders, and equally our investors and ourselves as fund managers.

Now, we won't spend too much more time thinking about the track record other than to say that the majority of the returns or the outperformance of the fund has actually been in downward trending markets.

And you can see on this slide that we have what is called a downside capture ratio of 56%.

And what that shows is that for every $100 the market has dropped by, the fund is only on average dropped by about 56 in comparison.

So very much reflective of our attitude towards risk management and capital preservation.

The flip side to this of course, is that when markets are performing very strongly and momentum starts to tick in, then the fund will only participate or has historically only participated in about 84% of the upside.

And that's because as fundamental bottom-up investors who focus on cash flows, hard assets and the like, that where fundamentals are breached and the market is pricing in more than where we see a company's worth, we'll exit our position.

We won't be banking on a greater fool to come along and buy our shares at some point in the future.

And so, yes, that momentum could see the share price drift away from us and see us miss out on some of that upside.

but we're quite comfortable to do that because we're maintaining our sell discipline and staying true to ourselves and true to our process.

So how are Collins Street Asset Management and importantly within the Collins Street Value Fund, how are we different?

Firstly, we invest only in those companies that we want to hold.

We're not compelled to hold a stock simply because it's a large part of the index or because the sector it sits within is a large part of the index.

Private investors, and certainly 85% of our clients would be private investors and family officers who approach us directly.

Other types of people who would say, well, if you've done research into a company, you've read all the annual reports, you've met with competitors, suppliers, customers, and so forth.

And after all of that scuttlebutt, you decide you don't like the company.

Why would you simply hold an underweight position?

Why are you tracking an index relative return when your mandate is an absolute one?

And so certainly for us, if our research uncovers that a stock is overpriced or perhaps doesn't have the potential upside we're looking for, then quite simply, we won't hold them.

We believe in behaving like investors, not speculators.

So for us, we're looking for known assets and known cash flows.

And as value investors, at the end of the day, we're simply looking for those ideas which are trading at 50 cents, but really worth a dollar.

We're not buying something for a dollar that's worth a dollar in order to chase hopes and dreams and unicorns down the road that certain growth objectives will be achieved over time.

We are unconstrained in where we find value.

And certainly when we think about risk, we are thinking about it from a capital preservation and an absolute return focus.

In terms of an alignment of interests model, we are 100% success-based in our arena ratio within the Collins Street value fund.

There are no fixed management fees, no half a percent or 1% simply for turning up.

If our clients don't make a profit on their investment, there are no performance fees.

It's that simple.

And so to that end, we are genuinely incentivized to preserve capital because we don't have, our high watermark never resets and it only ever continues to ratchet up over time.

We're also incentivized to manage capacity very tightly.

And so for us, it's about not becoming a multi-billion dollar fund.

We currently have about 200 million in this fund and we'd say total capacity being somewhere around 400 to 450 million.

The more money you make, the harder it is to generate a return on that money in an absolute sense.

And it's something we intend to guard very closely.

I think a lot of these points that we've already covered, we are deep value, we are contrarian and we are high conviction in nature.

The one point that I would say here though, is that great ideas can't be found from the comfort of an office.

To truly be a great investor, you have to be able to go out and get amongst it.

Talk to suppliers, talk to customers, do your scuttlebutt in unconventional ways and try and uncover those informational insights that the market is missing.

Because if there are those deep value opportunities out there, you don't wanna get caught and find yourself catching a falling knife.

Sometimes things are cheap for a reason.

And the role of the professional investor is to try and understand where that disconnect is between price and true value.

As I said, our investment process is one which is very hands-on, very inquisitive, and is one which is very time consuming.

It might take us six, 12 months to get comfortable in an idea before we make a final decision to buy or not.

Overtime performance, as we've said, has seen a dollar investment in 2016 grow to above $2 as it would stand today with distributions reinvested.

Again, noting that past performance isn't a reliable indicator of future performance.

In terms of the current positioning of the portfolio, you can see here we have about 8% in gold, which is a very high conviction view for us.

And if we look inside the convertible notes allocation, we also have a strong component of gold there, such that the true exposure to gold in the fund at the moment would be about 15%.

The fund also has a high conviction view in energy and traditional fuels with some of the larger positions being in the likes of Carnarvon, Beech, MMA, Offshore and the like.

The fund currently has about 4% cash, but we are unconstrained in our cash allocation.

And historically, this has averaged about 15%.

Because we have this unconstrained cash allocation, we're not compelled to hold the index and we can

accumulate cash in times where markets are particularly overpriced.

This slide here shows some of our current portfolio positions.

We don't show all of them as you can appreciate given we might be entering and exiting some, but I highlight these here as one example.

I'm certainly happy to talk through any stocks if there are questions that people would like to share through the team after today's presentation.

I'd like to, in closing, share a quote with you from Michael and Vas, that you can get rich slowly or you can get poor quickly.

Timeframes and outcomes rarely cross over.

And for that reason, it's important to do your research, back your positions with conviction, and have a genuine timeframe to see them through.

The Collins Street Value Fund, as I say, is available to sophisticated or wholesale investors only, is available on a range of IDPS platforms, as well as with us on a direct basis.

Certainly reach out through the investment markets team if you have any questions and my details are here as well.

Thank you everybody for the opportunity to present to you today and I look forward to any queries or what have you that you might have.

Have a great day.

Bye.

Thank you, Rob, for the wonderful presentation.

We certainly learned a lot about the Collins Street Value Fund.