Truth be told most fund managers add little value for their clients. Around 70% of them under-perform the market after fees, although ethical funds tend to outperform. In this context, it is all the more impressive that the flagship Pie Australasian Growth Fund of the NZ-based Pie Funds is up 224% since it started in December 2007. That compares to a return of about 55% from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).
The founder of Pie Funds is Mike Taylor, who has a fantastic reputation (and record) as an investor. However, it is clear is that what makes Pie Funds so awesome is the whole team, right down to the younger members who I assure you are very astute individuals. The Head of Research at Pie Funds is Mark Devcich, and he was kind enough to share some insights with me a few weeks ago. I'm sharing them with you now, in the hope that it will improve your investing – I have edited the conversation lightly, mostly to make myself seem more eloquent.
Me: What would you do differently if you were a small investor instead of a fund manager?
Mark: We can't invest outside our own funds, so we have to create our funds like they are a personal account portfolio. Our funds are different to the normal fund manager. We're not as diversified, we're putting our money in our highest conviction picks. I guess if we had $100,000 rather than $150 million then there are smaller companies we could invest in and get the liquidity we can't for a bigger fund.
Me: Do you have any view on China?
Mark: We don't make big macro calls [but] my gut feel is that [Chinese] demand will switch from hard commodities to soft commodities.
Me: What is one of your most successful investments?
Mark: Vita Group has been a good one for us. That's probably the largest or second largest position across the funds.
Me: Can you name a couple of the positive attributes that attracted you to Vita Group Limited (ASX: VTG)?
Mark: We were investing alongside management. It was really down and out, no-one was looking at it.
Me: You've taken a slightly activist role with Vita, haven't you?
Mark: Well, they have $40 million of franking credits on the balance sheet. If they made a decision to pay a bigger dividend and release some of those franking credits, other investors would see the value in that.
There is no doubt smart money pays attention to Pie Funds. However, you shouldn't just follow fund managers because you have no idea of their rationale. For example, I was a bit negative about My Net Fone Limited (ASX: MNF) when they first started selling some of their holding, but the share price is up around 60% since then. It turns out the fund often sells part of their holding before the company is overvalued. For example, they bought Azure Healthcare Limited (ASX: AZV) ages before I did, and I was happy enough to buy their shares as they sold down after demand spiked for the stock quite recently.
