06
Sep
2019

By Scott Phillips

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Five things to know about our new small companies fund

If you’re looking for growth, then a good place to find it is among the smaller companies universe. That’s why Montgomery has decided to launch a new small companies fund focused on businesses outside the ASX100. This article is designed to share some information for would-be investors.

We have posted a number of articles introducing the new team, their credentials and details on the fund, but inevitably there are always more questions for prospective investors. Here we address the most common questions. This is by no means a “short-cut” to reading the offer documents (PDS and Investment Booklet) yourself, but it might cover off some outstanding thoughts you may have about the strategy.

1. Why has Montgomery decided to launch a small companies fund now with Gary Rollo and Dominic Rose?

We are opening the fund at the end of the Australian company reporting season (ending 31 August) and it will start investing on Friday 20 September. This way, we have the most up to date information on each prospective investee company. Gary and Dominic are meeting with both known and new companies that emerged post reporting that caught our eye. We also are using this time to adjust our valuation models, undertake due diligence on businesses models, re-confirm industry dynamics and assess management and where necessary build new models for companies which we have not reviewed before.

Montgomery chose to partner with Dominic and Gary for a number of reasons. They include; sharing similar philosophies on Quality/Value/Growth, long term investing approach along with the need for bottom up fundamental research, a focus on capital preservation and strong risk management practices.

Gary and Dominic are very experienced small cap investors with over 10 years of experience each. They share a passion for investing and believe that investing in their own funds, alongside clients brings about the right alignment of interests.

2. What overlap, if any, will the strategy have with the existing strategies in the Montgomery stable from both a holdings and philosophy point of view?

The first thing to note is that the Montgomery Small Companies Fund is focussed on domestic businesses, those primarily listed on the ASX ex-100 and NZX, and potentially some that are pre-IPO in those markets. The Fund will have little to no overlap with our global capabilities, including the Montgomery Global Fund, ASX: MOGL and Montaka strategies. On the Australian front, as The Montgomery Fund and The Montgomery [Private] Fund are similarly domestically focussed and can invest a proportion of their portfolio in smaller cap stocks, over time there could be limited overlap in holdings between these strategies. At the time of launch, we anticipate this to be as low as 5 per cent of the portfolios. This is due to there being key differences between the three strategies, as summarised below:

  • The Montgomery [Private] Fund and The Montgomery Fund are all-cap strategies, whereas the Montgomery Small Companies Fund will be focussed exclusively on small cap stocks: those namely outside the ASX100, and a limited number of pre-IPO opportunities.
  • The Montgomery Small Companies Fund, similar to The Montgomery Fund and The Montgomery [Private] Fund, are focussed primarily on high quality, undervalued businesses with growth potential. However, the small cap team will balance their portfolio with businesses considered as stable compounders, consider gaining exposure to high quality companies enjoying cyclical tailwinds, and on occasions opportunities where businesses are in transition. As such, the Fund can be described as “style neutral.”
  • The Montgomery Small Companies Fund may pay a distribution annually on 30 June, similarly to The Montgomery [Private] Fund. The Montgomery Fund, however, can pay a distribution bi-annually. Given the nature of the businesses the Montgomery Small Companies Fund will be investing in (early years of growth), it is likely that dividends are reduced to deploy into the company’s growth initiatives. As such the distribution income from the Small Companies Fund could be lower than both The Montgomery Fund and The Montgomery [Private] Fund.
  • Finally, an important distinction is around cash, the Montgomery Small Companies Fund will tend to hold less cash through the cycle than The Montgomery Fund (averaged above 20 per cent) and The Montgomery [Private] Fund (averaged above 30 per cent), who prioritise capital preservation over relative out-performance. The Montgomery Small Companies Fund will tend to be more fully invested and prioritise out-performance in the first instance. As a result, the Fund is likely to be more volatile given it is more fully invested, coupled with the fact that small companies tend to have more volatile share prices than large capitalisation companies. Typically, the Fund will hold around 5-10 per cent cash but does have the flexibility to move up to 30 per cent if conditions demand.

3. What does Montgomery think the team’s edge is in small companies and how will their addition complement the broader Montgomery team?

Our edge is in our process and our people. While these factors may seem difficult to quantify, the team both have more than a decade each in domestic small caps while Gary’s global technology experience adds further value. They have analysed stocks together for a long time now and know how each other thinks.

The addition of Gary and Dominic to the firm will also mean that all Montgomery domestic funds can leverage off a greater pool of investment insights and as a result pick and choose the best investment companies relevant to their portfolios. Moreover, Montgomery will now have eight investment professionals covering the domestic equities market, uncovering and analysing companies pre-IPO on the ASX and NZX in which the Montgomery Small Companies Fund can invest up to 10 per cent of its portfolio in, right to the top end of town in the ASX 100 where The Montgomery Fund and The Montgomery [Private] Fund can invest. From a research perspective, Montgomery will be covering companies at all stages in their life cycle which gives us great breath of opportunity and knowledge of companies over time.

4. When do applications for the Fund start and what is the easiest way to apply?

Applications for the Montgomery Small Companies Fund are now open via the paper-based application located at the back of the PDS, or via the online form here: Apply Now.

For those wishing to invest as seed investors, the Montgomery Small Companies Fund launches on Friday 20 September, both your finalised application and monies will need to be received by Fundhost, our Administrator, before 4:00 PM Sydney time on Thursday 19 September. The Fund will commence at a unit price of $1.00 on Friday 20 September.

Investors looking to invest under the special offer are welcome up to December 13 2019 (12 weeks from the launch date). For more information on the strategy or this special offer, please don’t hesitate to reach out to the team here at Montgomery.

5. Can I invest into the Fund through Netwealth?

Not initially. Netwealth usually require an independent ratings agency like Lonsec, Morningstar or Zenith to review the Fund before they would add the Fund to their Super and Pension menu. If you would like to be notified of when this occurs then please leave your details at office@montinvest.com

We appreciate your interest and consideration in the strategy to date and look forward to working for you if we don’t already!

To join the Montgomery Small Companies Fund on launch, please download the Product Disclosure Statement, please click here.

Our Funds

The Montgomery Fund

  • AUSTRALIA/NZ
  • Concentrated high conviction equities
  • From $25,000
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Montgomery Global Fund

  • GLOBAL
  • Concentrated high conviction equities
  • From $25,000
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Montgomery Alpha Plus Fund

  • GLOBAL
  • A market neutral strategy
  • From $50,000
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Montaka Global Access Fund

  • GLOBAL
  • Access long/short global equity portfolio
  • From $50,000
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Montgomery Global Equities Fund (ASX:MOGL)

  • GLOBAL
  • Concentrated high conviction equities
  • No minimum investment - see your broker limits
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Montgomery Small Companies Fund

  • AUSTRALIA/NZ
  • Concentrated high conviction equities
  • From $25,000
Learn More
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Our Funds

Concentrated High Conviction Equities

Listed

Montgomery Global Equities Fund (ASX:MOGL)

Global
Available on the ASX as an Exchange Traded Managed Fund, invests in 15 to 30 quality global businesses for long-term capital growth with a target distribution yield of 4.5% per annum. Mirrors the strategy of the Montgomery Global Fund.
Unlisted From $25,000

Montgomery Global Fund

Global
Invests in 15 to 30 quality global businesses for long-term capital growth. Priced daily. Mirrors the strategy of the Montgomery Global Equities Fund (ASX:MOGL).
Unlisted from $25,000

The Montgomery Fund

Australia/NZ
Aims to provide long-term growth and income by investing in 20 to 40 high-quality Australian and New Zealand businesses trading at attractive valuations. Priced daily.
New Fund

Montgomery Small Companies Fund

Australia/NZ
Aims to provide long-term growth by investing in 30 to 50 high quality, undervalued, Australian and NZ small and emerging companies with strong growth potential. Priced daily.
Unlisted from $1 Million

The Montgomery [Private] Fund

Australia/NZ
Seeks to deliver absolute returns from a portfolio of high-quality Australian and New Zealand businesses. Capital preservation is paramount. By invitation only.

Alternate Equity Strategies

Unlisted from $50,000

Montgomery Alpha Plus Fund

Global
Aims to generate positive returns in both rising and falling markets. Invests in 80 to 180 global businesses expected to deliver above-average returns, while selling short a similar-sized portfolio expected to deliver below-average returns. Priced daily.
Unlisted from $50,000

Montaka Global Access Fund

Global
Aims to generate materially higher risk-adjusted returns, net of fees, than is generally available in the equities market over the medium term. Priced monthly. Provides retail investors access to the Montaka Global Fund.
Unlisted From $1 Million

Montaka Global Fund

Global
Aims to generate materially higher risk-adjusted returns, net of fees, than is generally available in the equities market over the medium term. By invitation only.