Name of the Fund:

Phoenix MicroCap Investment Fund

About the Fund:

The Fund invests in high quality Microcap companies listed on the Australian Securities Exchange.

INVESTMENT STYLE

The Fund focusses on identifying companies with compelling future valuations based on fundamental analysis. We focus on identifying businesses that have strong management teams that have ‘skin in the game’, with a strong balance sheet and positioned to take advantage of strong sector tail winds.

Minimum Investment:

$100,000*

*The Fund manager can decide at their own discretion whether to allow an individual investor who wants to invest less than $100,000 into the Fund.

Maximum Initial Investment:

$500,000*

*The Fund manager can decide at their own discretion whether an individual who takes up the maximum investment, can increase their investment after a period of 12 months.

Recommended Investment Term:

5+ years

INVESTOR PROFILE: The Fund offers opportunities for wholesale, sophisticated and high net-worth investors to gain exposure to small and emerging high quality Microcap stocks on the Australian Securities Exchange. The Fund invests in microcaps in several ways including buying on market, through stock placements, capital raises, pre-IPO securities as well as through traditional IPO listings. We provide only general advice. Prospective investors should obtain their own independent financial, taxation and legal advice before investing into the Fund. Neither the fund manager nor the trustee make any representation or undertaking about the performance of the Fund.

WHAT IS A MICROCAP: A Microcap is generally defined as a company whose market capitalisation is below A$300 million. The Australian Securities Exchange is unique in the sense that even though a Microcaps market capitalisation is quite small, the number of Microcaps on the exchange is relatively high.

WHY MICROCAPS? The Microcap ecosystem within the Australian Securities Exchange operates on a relatively inefficient manner. This comes down to a number of reasons including but not limited to:

  • Generally, large institutions and stockbrokers cannot provide exposure to these companies to their clients as they have to adhere to certain limitations. These limitations could include market capitalisation minimums which are greater than the microcap stocks found in this Fund.

  • These institutions generally must adhere to minimum liquidity rules. As most Microcap stocks have low levels of liquidity, this means institutions must wait until the stocks market capitalisation and liquidity increases.

Due to these, and other reasons, Microcaps on the ASX have limited professional coverage which provides astute individual investors and niche Microcap Funds the ability to find undervalued companies that have been overlooked by the market. This scenario leads to the opportunity of investing in companies with incoherent valuations. This is the main focus of this Fund, to find undervalued stocks that have the potential eventually to come across the desks of large institutions when the above limits have been removed through share price appreciation.

ABOUT THE FUND MANAGER

Having been invested solely in Microcaps since 2009, the Fund manager, Mr Fadi Diab, is uniquely positioned to invest in this niche ecosystem. The Funds strategy was built through the process of investing large sums of money over a 14 year period, and through many bull and bear cycles.

KEY BENEFITS OF THE FUND

  • Fund Manager with extensive experience investing in Microcap companies

  • Fund manager has vast networks to access opportunities through participating in offers the general public cannot access like private placements, Pre IPO seed rounds and capital raisings

  • Higher growth profile than large cap companies due to the valuation inefficiencies experienced in this ecosystem

  • Gain early access to potential high growth companies

  • The Fund managers financial incentives are aligned with investors goals through Performance based incentives

  • The Funds strategy is generally geared towards holding companies for greater than 12 months

INVESTMENT PRINCIPLES

All stocks carry a certain level of risk, and the public consensus is that Microcap stocks carry inherently very high levels of risk. There are absolutely very high-risk Microcap stocks but we believe this risk can be managed. This doesn’t mean no risk, however a level of risk that is acceptable to us. Most people focus on finding companies that have the potential to make very large gains, however we focus on risk, rather than potential. To manage risk we focus on a number of factors:

  • We primarily invest in companies where the board and management teams hold a significant amount of ‘skin’ in the game. In my experience, this is the one factor I’ve found most people underestimate the importance of. If the team in charge have no financial interest in ensuring its success, then what incentive do they have to perform other than their reputation? You may say though that they have a financial incentive to remain employable and continue receiving their annual salary. Even though this is true, unlike large caps, there isn’t much public scrutiny on Microcap stocks. Individual investors who hold large amounts of shares can place pressure on management, but other than that the board of directors can underperform year on year and there isn’t much that small shareholders can do about it. The majority of Microcap stocks are run by directors who hold directorships in numerous companies and simply live off the combined salary of each company. It’s not a bad strategy to get a high income. If on the other hand, a director, or the team overall, has a large number of shares in the company then their motivation to ensure share price appreciation occurs is very real. Even though this factor significantly reduces risk, this doesn’t mean you are guaranteed success. Ultimately though it does mean the team in charge of the company will live with the financial consequences of their decisions.

  • We look for companies that have tight share structures which is characterised by the majority of the shares on issues held by a small number of investors. Generally, shareholders with a significant number of shares, they have a deep understanding of the long-term direction of the company and are more willing to give management the time to deliver on the company’s goals that have been set. For this reason, they are less likely to sell on short term appreciations in the share price compared to a register filled with small retail holders.

  • We don’t believe a ‘buy and hold forever’ strategy works in Microcaps. Rather we focus on companies where risk can be managed as well as the stock having a high potential for growth. If and when a company’s share price rises significantly, once it gets to the stage where the risk can no longer be managed, we exit our position. Even if the potential is still high, the increased risk still means we will exit our position.

  • Sector Analysis – Sector should be in the early stages of entering a bull market driven by favourable global or economic factors.

Interested in Investing?

Request an Infopack to receive a comprehensive Term Sheet of the Fund.

Got any questions? Contact Us

This material has been prepared by Phoenix Global Investments Pty Limited (ABN #) (Phoenix, ‘us’ or ‘we’). Phoenix is a corporate authorised representative (CAR 001299284) of Hall Capital Finance Pty Limited (ABN 27 624 317 997) (AFSL 518039) (Hall).

The material is for general information only and is not an offer for the purchase or sale of any financial product or service. The material has been prepared for investors who qualify as wholesale clients under sections 761G of the Corporations Act or to any other person who is not required to be given a regulated disclosure document under the Corporations Act. The material is not intended to provide you with financial or tax advice and does not take into account your objectives, financial situation or needs.  Although we believe that the material is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded. Please note that past performance may not be indicative of future performance and that no guarantee of performance, the return of capital or a particular rate of return is given by Hall, Phoenix, any of their related body corporates or any other person. To the maximum extent possible, Hall, Phoenix, their related body corporates or any other person do not accept any liability for any statement in this material.