Resisting the allure of short-term sugar hits

Keeping the focus on the fundamentals is at the crux of Spheria Asset Management’s pragmatic approach to investing, earning its Australian Microcap Fund the win in the Australian Equities – Small/Mid Cap category at the 2022 Fund Manager of the Year Awards.

Off the back of earning an additional Financial Newswire 2022 Star Manager status, Spheria Portfolio Manager Matthew Booker said it all comes down to consistency and sensibility around discipline, process, valuations and sustainability.

“After the COVID-19 pandemic hit, that was the opportunity for us to rotate our interest in companies where we thought good value would be coming out of that downturn,” Booker said.

“We’ve managed to come out of that and we’re happy with the investment rotation we did. The process worked through that period. We perform well over long periods now and we do it at lower risk and lower volatility.

“We’re buying genuine businesses that generate strong cash flows and pay sensible valuations depending on the growth profile for those businesses.

“We have a pragmatic approach, and we don’t get carried away with ourselves. Having that discipline around the process is one of the most important attributes in funds management.”

As part of Spheria’s triple-threat team, made up of fellow Portfolio Manager Marcus Burns and Head of Trading Adam Lund, Booker has also set out to buck the system and fight the stereotype that low risk means low returns.

“In the last few years, we’ve had the Buy Now Pay Later (BNPL) bubble and we didn’t buy into that; then we had the cash-burning tech companies and now the lithium bubble – we haven’t paid any of it, and we’ve performed well,” Booker said.

“But we don’t try to pigeon-hole ourselves. We’ll buy growth companies with an equally transparent growth profile.

“We’ll pay across the spectrum with the value companies and growth companies that are equally valued. We’ve been consistent and the team shares the mindset that the fundamentals are important.”

And it is obvious the firm’s disciplined approach has been working. The fund has outperformed the benchmark by over six per cent since its inception in May 2016, and while Booker acknowledges some business and market assumptions don’t always go to plan the fund has always come out the other end.

“There are higher returns to be had at the smaller end of the market. We’ve generated good returns at lower risk by not investing in companies that may be hot, as those bubbles will deflate quickly,” he said.

“We steer away from the hype and focus on the fundamentals. It can be a bit boring what we do, but boring can be good in the long-term.”