Blackmore Capital takes out the 2020 IMAP Award for Australian Equities.
By Jayson Forrest - Managing Editor - IMAP Perspectives - Link to article
An intensive approach at Blackmore Capital
The judges were impressed with Blackmore Capital’s approach to investing, with the long-only Australian Equity portfolio manager taking out the 2020 IMAP Award for Australian Equities.
This year’s panel of judges had a quality line-up of finalists to sort through in the Australian Equities category of the IMAP Awards, with the eventual winner impressing the judges with the quality of its investment team, its strong track record of outperformance, its approach to research, and its deep understanding of investments. That winner was Blackmore Capital.
“What came through with Blackmore Capital’s submission was it clearly knew its investments inside out,” says judge and Chair of IMAP Portfolio Management Group, Amanda Munro. “This portfolio manager is very strong on visiting companies. It talks to competitors, clients, suppliers and industry bodies. It has a real commitment towards keeping abreast of all types of third-party information, which was a key strength of its submission.”
According to Amanda, as far as investment selection, Blackmore Capital strikes the right balance between qualitative and quantitative considerations. She was pleased to see the manager focused not just on balance-sheet and cashflow, but also P&L issues and company financials.
Blackmore Capital got the nod from the judges for its Blended Australian Equities Portfolio, which is its flagship portfolio that seeks to generate long-term capital appreciation by investing in Australian listed equities. The universe for the portfolio is the ASX 200.
According to Blackmore Capital co-founder and Chief Investment Officer, Marcus Bogdan, the objective of the Blended Australian Equities Portfolio is to deliver returns that are above the benchmark - ASX 200 Accumulation index - over a rolling five-year period. The manager seeks to achieve those returns with lower volatility and lower investment drawdown on its portfolios.
“This is the objective by which we measure ourselves against, along with our return and the volatility of our portfolios, particularly in times of distress,” Marcus says.
Over the seven years since Blackmore Capital has been running this strategy, Marcus says there’s been half a dozen periods when the market has fallen by more than 5 per cent, but on each of these occasions, his portfolios have been less volatile and have had less investment drawdown, allowing them to recover more quickly to their previous peak than the market.
Deep commitment to research
Marcus believes where Blackmore Capital adds value to investing is through its intensive approach to the primary research of the companies and industries it invests in, which was also something the IMAP Awards judges acknowledged.
“We spend a lot of time in the field talking to companies and industry participants, both locally and internationally. We conduct about 300 company interviews a year per portfolio manager. And that involves us speaking directly to the companies that we are invested in, speaking to competitors, speaking to industry bodies, and speaking to the regulators in the industries that we’re interested in,” Marcus says.
“We find that combined with the specialist research that we draw on, this approach provides us with a very good understanding of the companies we own, as well as understanding the catalysts where value can be created or where value could potentially be destroyed .”
A comprehensive screening process
When it comes to selecting companies to invest in, Blackmore Capital employs a comprehensive screening process that involves five stages.
The first stage involves closely looking at a company’s earnings quality. Marcus says the portfolio manager is particularly interested in the historic performance of companies. This includes the returns companies have generated, where they are in their own profit cycle, and the sustainability of those returns going forward.
For its second stage, Blackmore Capital undertakes an industry study of all the companies it is considering investing in.
“We want to know who are the main participants and competitors in that industry, what is the size of that industry, and what are the historic returns of those industry participants. That gives us a sense of how well a company is tracking, compared to its industry counterparts.”
The third step is about balance sheet strength, which Marcus says is a particularly important component of Blackmore Capital’s assessment of companies.
“We not only want earnings to be sustainable, but we also want their balance sheets to be sustainable. So, we’re more attracted to companies that have low gearing and have greater optionality in their balance sheets.”
The fourth step is an assessment of management capability. This involves interviewing key participants to ensure there is alignment between what they are saying and doing, particularly in terms of a company’s approach to environmental, social and governance (ESG) factors.
The fifth and final stage is about portfolio construction, where all these screening elements are brought together into a portfolio. “We want the companies in the portfolio to be resilient and deliver lower volatility in both earnings and share price performance to our investors."
Democratisation of the industry
According to Marcus, taking out the IMAP Award for Australian Equities is “incredibly significant”.
“IMAP Chair Toby Potter was spot on by saying managed accounts had democratised the industry. And it’s through managed accounts that Blackmore Capital has been able to become a key participant in providing this solution to a wide range of clients who don’t want to be in a unit trust structure.
“Clients want the transparency of a managed account, they want the ownership of the underlying assets, and they want to feel like they are participating in the investment process,” Marcus says.
“So, winning this award, while being an active participant in the democratisation of this industry, is both personally and professionally significant for the team at Blackmore Capital.”