The Lakehouse Small Companies Fund looks very different to most other portfolios, even compared to most other small-cap funds. It’s partly because we’re very comfortable investing early in great growth companies, and partly because we back our best ideas with conviction.
We don’t see much appeal behind backing, say, our 31st-best idea in what is a tight universe, which is why the Fund will typically hold only 15 to 30 high-conviction investments at a time.
Contributing to our mindset is:
- our long-term time horizon, and
- that very few companies meet our high standards.
We also prefer to know our companies very well — we’ve talked shop with companies more than 200 times since the Fund launched — which also better suits a concentrated strategy.
The last but perhaps largest difference between us and our peers is that we’re very specific about the types of opportunities we’re after. Instead of dabbling among industries, we’re focused on finding businesses that present the following characteristics:
- Strong positions in growing markets.
- Pricing power with customers and suppliers.
- Durable competitive advantages grounded in: scale, strong brands, network effects, or high customer switching costs.
- Aligned and experienced management teams with strong track records of capital allocation.
- Conservative balance sheets.
- Attractive valuations that afford upside to our estimate of fair value.
The reality is that few companies present most of the above traits, and the ones that do are not typically found in cyclical, capital-hungry sectors such as materials, energy, or real estate. We much prefer to instead focus our time and capital on slices of the market known for high customer loyalty such as enterprise software and consumer brands.
For that matter, the huge majority of the companies in the portfolio today have business models built around some form of subscription or long-term agreements. We sleep well knowing our portfolio companies have earnings streams that are, at-large, far more visible and less cyclical than the market.
What kind of companies does the fund buy?
The Lakehouse Small Companies Fund does what it says on the box. We look to invest in companies outside the ASX 100 — think market caps smaller than around $2 billion — as they tend to be underfollowed and overlooked. That gives us a universe of around 2,000 potential investments in Australia and New Zealand, which is exciting as very few of these smaller companies are on the radar of big institutions and the mainstream press.
Bigger picture, we’re looking to invest in companies for three, five, and ten-year stretches. Such a long-term outlook underscores why we’re focused on buying quality, well-run companies in growing industries. To that end, we’d rather buy a young thoroughbred at a modest discount than a broken-down old nag for a big discount.
Our focus, plus a tilt towards companies with loyal customers and recurring revenue models and away from cyclical, capital-hungry businesses, explains why the Fund looks so different from its benchmark and most other small-company-centric funds.
I mentioned that we run a high-conviction strategy and aim to get to know our companies very well. What I glossed over was that we turn over a pile of rubble in order to find the gems: Our team has caught up with more than 100 other companies since the Fund’s launch.
We’d like to think that our long-term, business-focused approach helps to open so many of those doors, and we’re sure it doesn’t hurt, but the simple reality is that a lot more opportunities find their ways to us because we’re corralling a nine-figure pool of our investors hard-earned capital. Not just for getting the attention of management teams, but also access to the flow of the dozens of opportunities among IPOs, pre-IPOs, and institutional capital raises that cross our desks.
Typically, the Fund will hold 5% to 15% of its capital in cash, and can and does participate in IPOs and institutional raises, plus it has the ability to invest up to 10% of its capital in private market investments (namely, pre-IPO investments).
It’s not for everyone
We freely admit that our style at Lakehouse Capital is not for everyone. We back our best ideas with conviction, don’t get fussed about short-term volatility, and are focused on fast-growing companies that we think have bright long-term prospects.
Given our style, the Fund’s strategy, and the large minimum initial investment, we can see why the Fund isn’t right for most investors. But, while it’s still early days and we’re the first to say that past performance isn’t indicative of future returns, we’re pleased to say that the Fund is off to a good start towards its goal of long-term outperformance.
Unit Price as at 28-Feb-19
|Lakehouse Small Companies Fund||Date||Entry ($)||Mid ($)||Exit ($)||Unit Price History|
|Monthly Unit Price||28-Feb-19||$1.5064||$1.5026||$1.4988||Click Here|
Net Performance as at 28-Feb-19
|1 month||FYTD||1 Year||Since Inception|
|Lakehouse Small Companies Fund, Net ^||7.2%||7.0%||11.2%||58.5%|
Who should not invest in the Fund
The Lakehouse Small Companies Fund investor has a meaningful stake in the fund, not a punt. We prefer investors who share our long-term time horizon. Like us, they measure success over years, not months. They know that trends come and go but that proven, repeatable investment processes win out over time.
Lakehouse Capital is a big commitment and exciting opportunity for us and we want to share that same sense of conviction and enthusiasm with our early investors. In the long run, we’re looking to establish a boutique investment firm that prides itself on fresh ideas and long-term outperformance. The minimum investment for the Lakehouse Small Companies Fund is $100,000.
The Lakehouse Small Companies Fund is now accepting new investors
Investing in the Fund is a big decision for investors and it’s important to make an informed choice. Potential investors should read and consider the Product Disclosure Statement (and seek professional advice) when deciding whether to acquire units in the Lakehouse Small Companies Fund.
What should potential investors expect in the application process?
After first reading the product disclosure statement (may have to seek professional advice) applying for units in the Lakehouse Small Companies Fund is a 2-step process. Once potential investors have decided the Fund is right for them, all they have to do is:
- Complete the application form, and
- Transfer funds
We’ve made the online application form as simple as possible and applicants can get prepared by having their tax file number, and identity documents such as a driver’s licence and passport, ready.
In advance of filling out the application form, (and especially if applying in the name of a SMSF/ Company/ Trust etc) we strongly encourage potential investors to watch this brief 3-minute instructional video:
Potential investors, to invest in the Lakehouse Small Companies Fund, please click the button below:
As ever, thank you for your time and trust.
Joe Magyer, CFA
Chief Investment Officer
P.S: Potential investors should read and consider the Product Disclosure Statement (and seek professional advice) when deciding whether to acquire units in the Lakehouse Small Companies Fund.
New! This brief 3-minute instructional video guides new investors through the application process. Includes details regarding immediate online ID verification, applying via an entity eg: SMSF, making payment via BPAY, and more. Potential investors can access the online application form by clicking here.
Lakehouse Small Companies Fund (ARSN 615 265 864) (Fund). The responsible entity for the Fund is One Managed Investment Funds Limited (ACN 117 400 987) (AFSL 297042). The information included in this message has been prepared without taking account of the reader’s objectives, financial situation or needs. All of the commentary, statements of opinion and recommendations contain only general advice. Any person reading this message should, before deciding to invest in the planned Fund, read the product disclosure statement and seek professional advice. Data is current as of 31 March 2018. Lakehouse Small Companies Fund PDS | Lakehouse Small Companies Fund APDS