A small cap fund backed by two fresh-faced investors with no prior funds management experience has managed to outperform the benchmark consistently since its inception in July 2018.
As of August 31, Spatium Capital's Small Companies Fund returned 30.4% on a one year basis, 23.6% since the beginning of the year, and 10.6% over three months, net of fees and before tax. Since its inception, it has returned 17.4% per annum.
In comparison, its benchmark S&P/ASX Small Ordinaries Index returned -0.6%, -2.7% and 6.1% over the same time periods. The index has returned -0.6% per annum since July 2018.
For context, the top performing small cap Australian equities fund that Rainmaker tracks over a one-year basis was OC's Micro-Cap Fund, returning 31.4% to August 31. This was followed by Pendal's MicroCap Opportunities Fund (20.8%), Australian Ethical Emerging Companies Fund (20.6%) and Lakehouse Capital's Small Companies Fund (18.6%).
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Spatium Capital is run by Nicholas Quinn, a former PwC global tax specialist and Jesse Moors, formerly a business development manager at CPA Australia.
According to his bio, Quinn brings financial advisory and software development services experience to Spatium Capital, and has an "affinity for physics and mathematics" which has influenced the creation of the investment manager's strategy.
Moors on the other hand, boasts insolvency and corporate restructuring experience, and oversees distribution, operations and has shared responsibility with Quinn for the investment management process.
They both attended the same Catholic secondary school in Essendon West, Melbourne.
Speaking to Financial Standard, Moors said the fund had seen a lift in inflows over the COVID period as investors took notice of its performance.
"Our fourth quarter for FY2020 was quite impressive by a lot of people's standards; we delivered a 38% return in that quarter so we had a relatively good period during the brunt of COVID," he said.
The fund was backed by a seed investor in July 2018, with Moors and Quinn launching the unregistered managed investment scheme to wholesale and accredited Australian and Singaporean investors in March 2020.
While Moors said the investment manager so far has not had much luck with Australian financial advisers due to its two year track record, the fund's performance and consistency of returns has helped it have some "good conversations early on in the piece".
"We are quite unique in that we have a higher turnover strategy than most; we will turn over the full portfolio every 30 to 45 days," he explains.
"For a self-managed super fund taxed at a marginal rate of 15%, they are likely to be less concerned by this high turnover approach, so our ability to find short-term opportunities in the market and deliver a consistent performance has been quite important for those investors."
Spatium Capital uses a "relative valuation model," with five filter drivers, Moors said.
"We use a macro filter, an industry filter, a small companies filter, the decay rate and then the hurdle filter as well," he said.
"That all feeds into our relative valuation model of which we use those outputs to determine whether we consider which of the top 300 listed equities are undervalued, what portion we want to investigate further, and in our opinion, what portion is fair valued."
Moors and Quinn will subsequently build a portfolio of around 25 to 40 positions after assessing the remaining companies.
Its top performing positions so far this year have been IDP Education, Austal, and Monadelphous Group, Moors said.
"We are stock pickers by design; we don't try to be industry or sector weighted or have an economic forecast of where we think a sector may be going," he said.
"We are purely focused on stock selection at a company basis."
The fund's minimum investment is $250,000 for wholesale investors. It has a management fee of 1.25% per annum and a performance fee of 15%. Spatium Capital is an authorized representative of D H Flinders; its trustee is Vasco Trustees.