Fundie chases profitable, growing small caps with high conviction

In the lead up to this week’s The Insider: Meet the Fund Manager, Hedley Widdup from Lion Selection Group (ASX: LSX) sat down with Reach Markets to provide a bit of information about his investment strategy, industries of interest and view on the market.

In the lead up to this week’s The Insider: Meet the Fund Manager, Luke Winchester from Merewether Capital sat down with Reach Markets to provide a bit of information about his investment strategy, industries of interest and view on the market.

Merewether Capital operates a long-only investment strategy that focuses on ASX-listed small and micro cap companies. The fund has a concentrated portfolio of between 10-25 positions in companies that are outside of the ASX-100, and is industry agnostic aside from excluding pre-revenue resources and biotechnology companies.

While Luke remains cautiously optimistic of the market, this is clearly split between large caps, of which he recognises valuations are currently stretched, and small caps – where he believes there is quite of a bit of upside yet to be had.

He is specifically going after profitable companies that have clear growth prospects that haven’t really been understood by the market, despite being successfully executed by management. A strong focus on management comes from his understanding of the importance of key people in business, which was developed during his time completing a Bachelor of Business majoring in Management and Human Resources.

Before launching Merewether, Luke was a portfolio manager and research analyst at Oracle Investment Management, a high conviction fund manager with a bottom up growth investment strategy that aims to identify great businesses with enduring competitive advantages, that are trading a discount to their intrinsic or fair value.

It was at Oracle that Luke developed most of his analytical skills that he brought to Merewether. While he was responsible for a mid cap portfolio, he has taken the same approach to find companies with the same criteria that are a bit earlier in their growth cycle. 

He believes in an all muscle, no fat approach to getting his investment thesis down on paper. He explained that when analysing a stock, taking a concise approach and limiting the word count to 800-1,000 words often results in a piece of work that is extremely clear and explains a company in the best way possible. It’s a practice often implemented by the buy-side and is a stark contrast to sell-side research, which usually produce monster documents full of company and industry analysis. Sell-side research trends have recently moved more in favour of more frequent updates that are of smaller size in recent times.

In this Friday’s session, Luke will reveal three companies that are in Merewhether’s portfolio and explain what their key catalysts are for continued profitable growth. There’s a vertically integrated water services company that produced a NPBT of $7.08 million in FY23, a specialised developer of electric vehicle charging parts who produced a $3.76 million NPAT in the first half of FY23, and an international provider of healthcare communication solutions that produced $2.3 million NPAT in FY23.

Join Luke Winchester this Friday, 1st September at 12pm (AEST) on our The Insider: Meet the Fund Manager webcast to hear about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here.

Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets’ position. Any advice is general advice and does not consider your personal circumstances, you should consider whether it is appropriate for you. The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss. 

Past performance is not a reliable indicator of future performance.

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