Things that don't waste your time.

The following article appeared in MarcusToday last week. I am going to post two more topics on the same, theme of slipstreaming behind the best investment managers.

FOLLOW THE BREAD CRUMBS

Last week I wrote an article about three (there are ten) things that don't waste an investor's time. One of them was finding out what small and mid-cap Fund Managers are doing.

So let’s look at what fund managers are doing (or have done). Off the Morningstar website you can search the best performing mid and small cap funds over various periods. 10 funds that turn up as some of the best performers over three and five years that have a 5 star Morningstar rating are listed below with their biggest listed Australian equity holdings. The holdings are listed by size of holding in the fund, biggest holdings first - this is basically about 100 stock picks from successful fund managers - there has to be some value in that:

• BT Wholesale MicroCap Opportunities –ISU, RCR, BBN, RWH, CGL, IMD, IFM, HUO, LIC, GTK
• Ausbil MicroCap – ISU, SIQ, HSN, IMD, MLX, CAJ, BIN, RCR, MNF
• OC Dynamic Equity – BAP, SGF, UPD, WEB, BLA, BIN, SUL, SDA, A2M, QMS
• Forager Wholesale Value – MAH, EGG, CDD, NZM, JIN, SSM, DDR, GNG, PEA, GBT
• OC Microcap – UPD, MX1, PAC, NVL, KGN, AMA, JIN, EML, QMS, AXL
• SGH Emerging Companies – BRB, LVH, COE, APT, GSC, CMP, TON, XF1, ZNT, SPZ
• Pengana Emerging companies – CHC, BAP, NHF, WEB, SIQ, MFT.NZ, FRE.NZ, NCK, LVH, CTD
• Macquarie Australian Smaller Companies – BIN, CNU, SGM, RWC, NXT, PEP, SSM, MTS, SM1, ING
• Macquarie Australian Microcap – TGR, HSN, MSF, EPW, BRU, RXM, DRK
• Investors Mutual Small Cap – TOX, PGH, FLT, ANN, ZEL, FBU, CYBG, MYX, SCP, GWA

I could go on, but at the risk of information overload. But just let me point out that monitoring activity of fund managers is very commonplace amongst engaged and interested individual investors. If you consider someone like Wilson asset management has $2 billion under management then let’s say they earn 1% (I’m sure you can look it up) they would have approximately $20 million to spend on researching stocks. On the other hand someone running a fund of $100 million, which may sound like a lot but in this game it is tiny, will earn $1 million a year. That has to pay all salaries and office costs and let me tell you, relative to the big fund managers, they are on a shoestring. So who would you prefer to follow, a huge Mid-Cap fund manager or a small one. Obviously the game for the small ones is to be so good at stock picking that they become a large one. In fact some fund managers will start with literally their own money, start five funds (not bother marketing them yet) and after a year or two start marketing the best performing fund and close down the others.

The bottom line is it’s worth watching anybody who appears to be aggressively interested in stock picking and has the resources and brains you don't have to do it 24/7. Some of the fund manager names that keep coming up in this frame are Wilson asset management, Paradice, Thorney, Cadence - there are their top holdings. Anyone with Thomson Reuters or Bloomberg can also access whether they are buying or selling these holdings most of the time. Very useful information. Biggest holdings, biggest one first.

• Wilson Asset Management – CCP, AUB, NCK, RKN, CL1, IMD, SMX, CAJ, ONE, NBL, ISU, 3PL, SIQ, VRT, SXE, EPD, SW1, KBC, REF, IPE
• Wilson also invests money with a lot of other fund managers including - HHV, TGG, PNI, ENN, CTN, WDE, WIC, CIW, HHY, AUP, AIB, CYA
• Paradice Mid Cap Equities – ILU (buying), SGM (selling), BAP (selling), CNU (selling), SIG (selling), BPT (buying), SIQ (buying), WSA, BDR, MLD, SKB, SXY, PPS
• Thorney Opportunities (TOP) and Thorney Technologies Fund (TEK) – Hard to find their holdings but this is what is held by the Thorney Investment Group - SSM (biggest holding - have been selling this month), ADA, WEB (have been selling recently), MSB, HUB, RFG, MNY, ANG, FRI, OVH, UPD, SHV, DCG, LGD, EPD, MDL, SXE, MCP
• Cadence Capital (Karl Seigling) – MLB, MQG, RFG, JHG, RIO, ECX, IGO, ANZ, WPL, IPH, MND, NAB, SHV, CBA

This is a chart of SSM - Thorney has a big holding and has been selling - it is this sort of publicly available information you should be aware of before buying or selling:

There are many fund managers worth watching, you might like to email me with your suggestions of fund managers we should be following. If you are a fund manager that would like to be profiled here, email me as well. I am very happy to follow individual fund managers and hear about your stock picks and publish them. It can only help.

On our systems we can also trace whether some of these fund managers are buying or selling stocks at the moment, I have included that in some of the Paradice stock listings above to give you an idea. 

Perhaps of more use is to look at a stock you are thinking of buying and see who is buying and selling now. For instance GBT just fell over on results on 21/8/17. On the 30/8/2017, two weeks later, Perpetual investments, the second largest shareholder reported that they had just bought 970,000 shares, the share price had bottomed at 160c. Now 187c. That's useful information. But you have to go looking for it. 

The bottom line is that before buying or selling a stock you should attempt a forensic investigation of recent fund manager action in the stock. Fund manager’s holdings are in their monthly and quarterly fund updates which include the top 10 or 20 stocks. These give you a heads up on some of their preferred stock picks and by comparing this month with last month you can tell if they are buying or selling. 

If they have done the work (more work than you) and are smarter than you are (it’s their job) and have bought a stock (or sold it) you should probably know that and take that into account. Another way to spot the stocks they have been buying is to listen to them, you will usually hear them in the media talking their own stocks up, after they’ve bought them. That’s the game.

So before you go and buy anything, check who holds it, whether they have been buying or selling recently, and if they have been selling how many shares have they got left to sell. A lot of you won’t have access to that information but some of you will have and you should use it. At a minimum just look at the substantial shareholders announcements of each company to identify the biggest recent movements and check you are not buying into a big seller. 

Two other things that are worth looking at, that don’t waste your time, are short positions and director transactions. You can monitor those as well on the following websites:

Short positions – SHORT MAN – this is an idea of their daily value - this is the trend in shorting in the top 5 most shorted stocks:

Director Transactions – MARKET INDEX – these are the Director transactions on one day - they monitor them all manually - 5/9/2017