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NEWS

Insights, May 2020 - Uncategorized

The original article was published in the Australian Financial Review on May 11, 2020 (click to view)

Sarah ThompsonAnthony Macdonald and Tim Boyd

Fund managers have ruled off April performance numbers and attention has quickly turned to who’s in front for the all-important year to June 30.

As clients read through April monthly reports, one set of numbers that caught our eyes were from Melbourne stockpicker OC Funds Management.

OC Funds Management’s head of investments Robert Frost (centre), with senior investment analysts Rob Calnon (right) and Stephen Evans. Wayne Taylor

The OC Micro-Cap Fund returned 22.2 per cent in April, to be up 4.2 per cent for the 2020 financial year.

It’s no mean feat in a year where long-only rivals and the indices are down as much as 15 per cent. The S&P/ASX Emerging Companies Index, for example, is down 15.1 per cent since July 1, according to S&P Capital IQ. The S&P/ASX200 has shed 22.8 per cent.

The fund, led by OC’s investments head Robert Frost alongside firm veteran Rob Calnon, made the returns while running cash levels north of 10 per cent and occasionally closer to the 20 per cent limit.

So what’s in the portfolio must have performed.

Barclay Nettlefold’s QMS Media was acquired by Quadrant Private Equity in February.  Andrew Meares

Tailwinds have come from a few takeover targets – QMS Media, National Veterinary Care and Zenith Energy – while the firm’s a substantial holder in Baby Bunting, shuttered gym operator Viva Leisure, and Citadel Group, according to reported holdings. (The substantial positions are held in conjunction with sister Fund OC Premium Small Companies Fund).

That said, the M&A game hasn’t been all one way traffic. The firm also has positions in Western Australian based debt collector Pioneer Credit, which was left at the altar by The Carlyle Group, and owns CML Group whose scheme of arrangement with a big private equity-backed company also hangs in the balance.

It’s understood OC Micro-Cap Fund used the recent market selloff to add some new names to the portfolio. The buying includes Cedar Woods Property, MNF Group, Monash IVF, Capitol Health and Karoon Energy.

April’s positive returns came after a tough March quarter, with the fund down 26 per cent while its benchmark (the S&P/ASX Emerging Comp. Accum) was off 38.4 per cent. The top five holdings at March 31 were McPherson’s, MNF Group, Probiotec, Propel Funeral and Zenith Energy, according to a detailed update to clients.