About Adam Smith Asset Management
- Established boutique Australian equities manager, founded in 2003.
- Specializes in managing small cap (ex ASX 100 Index) portfolios.
- Majority owned by its investment professionals.
- Clients include large super funds and other institutional investors.
Why smaller companies?
Over the longer term, small companies typically outperform large companies. They tend to grow faster because they generally have more focused strategies and strong incentives to perform, and they provide larger companies with the opportunity to grow by acquisition. The relative inefficiency of the small cap market enables good active managers to significantly outperform the market. As we are currently seeing, small caps typically lead the recovery and gain more.
Why Adam Smith?
Adam Smith’s key portfolio managers have a wealth of experience in managing small cap Australian equity portfolios: Peter Mouatt has over 30 years’ industry experience, having been Head of Australian Equities at Macquarie and ING, and the inaugural manager of Australia’s first small cap fund at Rothschild in 1987. Stephen Atkinson has 15 years’ industry experience, including senior portfolio management roles at Deutsche Asset Management, Credit Suisse Asset Management and MMC Asset Management.
Disciplined Investment Process
- Fundamentally-driven, bottom-up stock selection process.
- Based on detailed original research, including over 400 company visits p.a.
- Cover a broad investment universe.
- Seek to invest in companies trading at attractive valuations that have:
o - strong free cash flow,
o - quality management,
o - a sound financial structure, and
o - a business model which provides pricing power and sustainable competitive advantage.
- Investment decisions are made with a longer term perspective.
- Low stock turnover and high franked dividends enhance after-tax returns.
- Risk controls include depth of research, diversification of holdings, concentration limits, liquidity requirements and a cash limit of 10%.
Adam Smith Small Companies Fund
Investment Objective -The fund’s objective is to generate significant medium to long term outperformance over the S&P/ASX Small Ordinaries Accumulation Index from a portfolio of listed shares in smaller Australian companies.
Investment Strategy - The fund invests in companies listed or soon to be listed on the Australian Securities Exchange, excluding those included in the ASX 100. Companies in the portfolio that move into the ASX 100 can continue to be held. The portfolio will be fully invested at all times, with no more than 10% being held in cash. The portfolio will generally consist of around 30 to 40 stocks.
Over meaningful periods of time, small companies typically outperform their larger counterparts. They tend to grow faster because they tend to have more focused strategies, their management normally have strong incentives to outperform, and they provide larger companies with the opportunity to grow by acquisition.
Investment Approach - Adam Smith Asset Management is an active manager that aims to outperform its benchmark by a considerable margin over the medium to long term. Founded in 2003, the firm is majority owned by its investment professionals, who have a wealth of experience in managing small cap Australian equity portfolios. Its clients include some of Australia’s largest superannuation funds and other institutional investors.
Adam Smith undertakes detailed in-house company research and follows a fundamentally-driven, bottom-up stock selection process in order to identify companies trading at attractive valuations that have strong free cash flow, quality management, sound financial structures and scalable business models which provide pricing power and a sustainable competitive advantage.
Investment Process - The first step in Adam Smith’s investment process is to screen out companies that do not meet its investment criteria. Such companies include mining exploration and biotech companies with no cash flow and speculative valuations. They also screen out companies with insufficient market capitalization and liquidity. Companies that do meet Adam Smith’s investment criteria are reviewed and the most attractive are selected for detailed financial analysis. This process involves rigorous attention to detail to gain a granular understanding of all relevant issues.
Investment decisions are made with a longer term perspective, so stock turnover is relatively low. Adam Smith recognises the importance of tax on investors’ portfolios and its impact is considered prior to making investment decisions.
Minimum Investment- $25,000