Portfolio manager shows faith and patience in small caps

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

Cyan takes a particular focus to tech, financial services, speciality retail, fintech, niche food & beverages, advanced manufacturing and consumer services. Graeme uses his experience as an industrials analyst to maintain a diverse portfolio of 25-35 stocks at any one time and with a bottom up investment approach. He believes it’s important to stick to your investment philosophies and processes, which translates into faith in the companies he adds to Cyan’s portfolio as long as they are growing throughout the cycle.

Their typical investment horizon starts during the company’s growth phase, after the concept has been well and truly proven. The investees will typically have around $50-$200 million market cap at this time. Cyan will ideally exit as the company enters maturity in its lifecycle, hopefully around the $1-$2 billion market cap range

Mr. Carson believes that given the uncertain macroeconomic environment investors are currently facing, it is peculiar that the recent share market rally has been so significant. He also commented that while the larger end has pushed on well, micro caps have been left behind – as well as a buying opportunity.

His observation of tech being hurt over the past 12-15 months, especially in the smaller end, has lead Graeme to focus especially on the businesses that have structural tailwinds behind them in industries that are themselves experiencing structural changes. He also sees opportunity in a potential financial services recovery that is leveraged to the smaller end of the market

Mr. Carson likes to delve into IPO’s when the market permits, labeling the fresh listings sector “a great bellwether for market sentiment”. 2022 was largely a brutal year for IPO’s, with the number of new listings falling 54%. Just $1.07 billion was raised across all the floats from last year, compared to $12.33 billion raised in 2021.

The fund manager highlighted the unique opportunity that IPO’s present – a certain degree of information and price inefficiency that can be capitalised on with thorough research. There is certainly some pent up supply after the number of companies that have had to pull the plug on hitting the boards. For demand to come back, Graeme says there must be a return of both confidence in the underlying market and liquidity in the small cap space – both of which have been missing as of late. He hopes for a good flow of IPO’s of reasonable quality in the second half of this year.

Mr. Carson has extensive experience from his time as a sell side analyst at Macquarie and Bell Potter. Cyan Investment Management is a fund that has a strict no resources, biotech or listed property mandate because Graeme prefers to focus on the areas that he has expertise in. He has always tried to find quality small caps and be patient with them

His portfolio weightings do lean heavier towards cash generative businesses. While it’s not mandatory for companies to be cash flow positive, the ideal time for Cyan to enter is where the company requires capital to fund that phase of growth that will get them to profitability. They also do take exposure to emerging businesses, but with much smaller position sizing.

As for the upcoming The Insider: Meet the Fund Manager session, Mr. Carson will share a few gems that he believes have genuine, proven business models along with strong growth profiles going forward so that you can assess prospective opportunities. 

Join Cyan Investment Management’ Graeme Carson this Friday, 3rd February at 12pm (AEDT), on our The Insider: Meet the Fund Manager webcast to hear him talk 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, or request the replay, click here.


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