Withstanding the tests of time

Yasmine Raso

Senior Journalist, Financial Newswire

16 November 2022

The investment philosophy of Australian Eagle and the team behind it all have seen its funds like the Australian Eagle Trust Long Short Fund weather the ups and downs over several market cycles and take home the Australian Equities – Large Cap honours at this year’s Financial Newswire/SQM Research Fund Manager of the Year Awards.

Speaking to Financial Newswire about the fund’s win, Senior Portfolio Manager Alan Kwan said the award is not only a testament to the investment team’s hard work in the six years since the fund’s inception, but also in the last 17 years working together.

“Over the past six years the portfolio has performed through a variety of market environments including a sharp contraction and rebound through COVID where the quality of the long side of the portfolio supported performance as it had done in the first three years of operation,” he said.

“The short portfolio has exhibited a little more volatility but has significantly added to the outperformance over the past six years.

“While we focus fundamentally upon the business quality, we also try to benefit from the dynamic nature of companies at they evolve. We believe that differentiates our approach and that focus on change has attracted investor curiosity.

“However, the delivery of consistent outperformance no matter the type of market cycle, we believe moves that curiosity into investor interest.”

The fund not only converts investor curiosity to investor interest, but it fulfils its promise to deliver returns. By using an index-independent and diversifying approach, it invests in 25 to 35 stocks in the long portfolio and 12 to 25 stocks in the short portfolio and leverages the firm’s successful 17-year history of strategy.

“Our long only strategy seeks to invest in superior quality companies with valuation upside coupled with a positive company change argument to drive outperformance while taking short positions in companies that do not exhibit these superior characteristics,” Kwan said.

“Such a strong focus upon company changes sometimes means that some of our best long positions can come from our short portfolio as we identify beaten down companies that display a positive change argument that can serve as a catalyst for a medium-term improvement in earnings growth and/or quality profiles.”

But Kwan continues to return the fund’s successful performance to give credit where credit is due: the Australian Eagle team.

“[It’s] a result of our team’s consistence application of our process. We are bottom-up stock pickers, so the consideration of macro events isn’t prominent when determining new companies for the portfolios. That said, we are aware of the accumulation of macro risks and tend to assess the portfolio for these risks once it is built.

“The concept of identifying companies undergoing some sort of change is agnostic to market style or events and the awareness of external macro forces allows the team to assess the risks to your thesis and weight the portfolio accordingly.”