By Jayson Forrest - Managing Editor - IMAP Perspectives
Brad Partridge Portfolio Manager - Macquarie Investment Management
For the third consecutive year, Macquarie Investment Management has taken out the IMAP Award in the Australian Equities Small Cap category for its Australian Equities Small Companies SMA Strategy.
With a track record spanning over 20 years in Australian Equities Small Cap, the team at Macquarie Investment Management must be doing something right, with the investment manager taking out the Australian Equities Small Cap category in this year’s IMAP Awards for the third consecutive year. The award went to Macquarie’s Australian Equities Small Companies SMA Strategy - a direct equites SMA, which focuses on companies outside the ASX 100 index.
In accepting the award, Brad Partridge - a portfolio manager at Macquarie Investment Management - says winning the award for the third straight year is “very special”.
“When you win an award, it’s always wonderful to have that external recognition but then to win the award three times in a row is simply fantastic,” he says. “It’s recognition that we are delivering a consistent outcome for our clients, and it’s something the whole team is very proud of.”
In presenting this year’s award, IMAP judge and Founding Director at Brad Matthews Investment Strategies, Brad Matthews said the Australian Equities Small Cap category is one of the more challenging categories for an investment manager to run a managed account.
“Small caps are characterised by often low liquidity and often wide bid-offer spreads. So, even if your stock selection is really strong, managing a managed account in the small cap universe can be challenging,” said Brad Matthews.
“What we found with this year’s finalists is they responded to those challenges well, and have produced very solid and competitive managed accounts in the smaller companies space.”
In winning the award, Brad Matthews said Macquarie Investment Management performed well across all the different attributes that the judges looked at.
“Macquarie had a very clear philosophy, a very well-articulated process that was highly repeatable, and its client communication was very clear and highly consistent in a manner that could be easily understood by retail clients. Its risk controls were very strong, and it had the benefit of having independence within its structure managing some of those risk controls.”
What clinched Macquarie’s win, according to the judges, was its consistency of performance and the consistency of the alpha produced by the strategy.
That consistency of performance and alpha generation is a credit to Macquarie’s investment philosophy, which Brad Partridge admits is done differently compared to some other managers in the marketplace.
He explains: “Rather than focusing on a pure fundamental approach, we run what we call a systematic approach. In this approach, we’re looking for characteristics in companies that have traditionally performed well in the Australian market.
“So, over the long-term in the Australian market, if you buy good quality companies at reasonable valuations, with positive operating momentum, then you tend to outperform. And particularly in small caps, where those types of factors are even more powerful.”
Small caps are characterised by often low liquidity and often wide bid-offer spreads. So, even if your stock selection is really strong, managing a managed account in the small cap universe can be challenging.
Well-articulated process
The IMAP judges were impressed with Macquarie’s investment process, which they said was well-articulated and highly repeatable. Macquarie’s investment process is built around three core factors: quality, momentum and value.
“We rank all the companies in our universe on those three factors and then we bias the portfolio towards the companies that rank highest in that process. So, that process gives us a portfolio that is well-balanced across both growth and value. We have a style-neutral approach with a tilt towards quality, which has performed well over the long-term,” Brad says.
In addition, he adds that Macquarie also applies an overlay to that investing approach, which he says is a “commonsense overlay seeking to ensure that we can account for anything that is happening in the market”.
He points to COVID-19 as an example of this overlay, where Macquarie’s stock ranking model is unable to identify this particular macro event.
“So, by using a commonsense overlay in constructing a portfolio, we’re seeking good diversification across various themes and sectors, as well as taking appropriate position sizes to account for the individual stock specific risk in each stock, such as we’re seeing with COVID-19.”
<sub>It’s all about consistency
When measuring the success of its offering, Brad says it’s all about consistency. To use a cricketing analogy, it’s about taking the single run, rather than trying to hit a six off every ball.
“If you keep taking the singles and build up some good consistent performance, then by the end of your innings, you’ve probably accumulated a pretty good score. So, that’s how we like to think about measuring our success,” he says.
“In small caps, you can make a lot of money with some good stock picks, but there’s also the possibility that you can lose a lot of money as well, because there is quite a bit of volatility in this part of the market. So, we take a more measured, risk-aware approach, aiming to ensure more consistent outcomes for investors over the medium to long-term.”
Rather than focusing on a pure fundamental approach, we run what we call a systematic approach. In this approach, we’re looking for characteristics in companies that have traditionally performed well in the Australian market.”
It’s all about consistency
When measuring the success of its offering, Brad says it’s all about consistency. To use a cricketing analogy, it’s about taking the single run, rather than trying to hit a six off every ball.
“If you keep taking the singles and build up some good consistent performance, then by the end of your innings, you’ve probably accumulated a pretty good score. So, that’s how we like to think about measuring our success,” he says.
“In small caps, you can make a lot of money with some good stock picks, but there’s also the possibility that you can lose a lot of money as well, because there is quite a bit of volatility in this part of the market. So, we take a more measured, risk-aware approach, aiming to ensure more consistent outcomes for investors over the medium to long-term.”
If you keep taking the singles and build up some good consistent performance, then by the end of your innings, you’ve probably accumulated a pretty good score. So, that’s how we like to think about measuring our success.”
IMAP congratulates all the finalists in the Australian Equities Small Caps category
- EC Pohl & Co
- Infinity Asset Management
- Macquarie Investment Management
SG Hiscock & Company