The increasing flow of capital into passive index funds and ETFs in Australia creates liquidity and pricing abnormalities that provide truly active fund managers with significant investment opportunities, Greencape Capital says.
Greencape Portfolio Manager David Pace said the three largest ETF and passive fund providers now made up in excess of 9% of the share registry of stocks included in the ASX Top 20.
“With the index already highly concentrated, passive funds continue to pour in, directing more capital into companies based on their position within the index, regardless of their underlying fundamentals.
“We see this as an inefficient allocation of capital that creates pricing abnormalities and provides significant investment opportunities for active managers. The opportunities for active stock pickers to capitalise on mispriced companies are greater than ever,” Mr Pace said.
“A willingness to deviate from the index does not alone result in success. Rather, as is the case at Greencape, it is that willingness combined with very extensive company visitation that results in an optimal portfolio of risk-adjusted ideas. Without the requisite proprietary analysis, it’s risk taking for risk taking sake”.
Greencape Capital has more than $7 billion funds under management and has two key strategies, the Greencape Broadcap strategy and the Greencape High Conviction strategy. Both Australian equity strategies have over 10 years of track record and have consistently beaten their respective benchmarks by 5.06% p.a.1 and 4.69% p.a.2 gross since inception. Greencape’s research involves over 1000 company contacts per year.
This decade of consistent outperformance occurred against a backdrop of bull and bear markets that included the impact of the global financial crisis, the response by central banks in order to stabilise the global economy and more recently, political uncertainty.
Greencape Portfolio Manager Matthew Ryland said a secret to this success had been maintaining an unrelenting focus on analysing what is really going on in companies and verifying observable facts, enabling high conviction investment decisions to be made with a high degree of confidence.
“We take a long term view of stocks where we believe the market is not pricing correctly. In some cases the market avoids risk rather than price it. In other cases the market undervalues the ability of an effective management team to create value through efficient capital allocation.”
Greencape is the recipient of multiple industry awards and has achieved top research ratings from all three research houses for both the Wholesale Broadcap Fund and Wholesale High Conviction Fund: Lonsec – “Highly Recommended” rating (Oct-16), Morningstar Analyst Rating™ of Gold (Oct-2016) and Zenith “Highly Recommended” rating (Jun-17).