The Newgate Absolute Return Fund is a strategy that takes long and short positions in Australian listed equity securities.

The objective of the Fund is to deliver strong double digit per annum returns over the medium to long term, with volatility in line with the general equities market. The Fund takes positions across the market capitalisation spectrum.
The Fund has the ability to completely liquidate and hold cash during periods of market dislocation. We only take risk where we assess we can generate a reasonable return.

Fund Facts

Download PDF

Investment Philosophy

We believe that the listed securities market regularly misprices a company or industry prospects. Our experience is this is primarily caused when the market incorrectly assesses or ignores fundamental change that is impacting a company’s economics.

In our experience, the reason that change is not fully appreciated is a function of the numerous behavioural biases and errors in subjective decision making that market participants experience.

On the back of this philosophy we believe to be successful we have to unify behavioural economics and industrial economics. We need to understand the circumstances that create market inefficiencies, why they exist and why they will correct. On this basis, we have developed an investment process that focuses on where anomalies are most likely to occur, and more importantly how to exploit them.

Our philosophy differs from the majority of the market. We do not undertake long range forecasting or attempt to arrive at a precise conclusion about a company’s long term valuation. At Newgate we are seeking to understand the fundamental agents of change impacting a company and its environment. We focus on changes that are observable or where there is sufficient evidence that they are imminent. We then determine how they will impact a company’s economics and market perception of value.

Our next challenge is to determine to what extent the market is pricing the state of the world we are observing or anticipating. If we find a situation where the market appears sufficiently incorrect, we will consider taking an exposure.   The final step is to anticipate the event, news flow or information that may see the market improve its perception of a company and the pricing of its securities.

Investment Process

Research based

Our investment philosophy defines us as a research based organisation.

We believe effective research starts with intuitive opinions on a potential opportunity. On this basis, we seek to generate multiple investment hypotheses around the circumstances creating a market anomaly. These hypotheses are tested through a rigorous, evidence based research process.

Our research process entails detailed analysis of historical company accounts, notes to the financial statements and all company disclosures. Upon this foundation we then undertake a heavy external communication process – with company management and industry participants such as suppliers, customers, government bodies and consultants.

Our objective is to genuinely understand the key drivers of a company within an industry, and more importantly understand whether the current market expectations for a company are properly priced by the securities market. Ultimately, we are looking to exploit mismatches between perception and reality.

Diversification

We genuinely believe in diversification. This does not mean that we mirror equity indices, but it does mean that we will hold a portfolio of securities with different characteristics and across different industry sectors. The fact is, proper diversification does not eliminate risk, but it can reduce short to medium term portfolio volatility, which from our experience is important to investors.

On top of this, diversification can also reduce the impact of investment management error. As we have found in our careers, it is not what you don’t know that hurts you, it is what you think you know for sure. Based on our philosophy and process, we always have conviction in our positions – but diversification exists to reduce the impact of misplaced conviction. We have been wrong in the past on our highest conviction views, and we will be again in the future.

Risk Control

Whilst diversification is an important component of risk control, over our careers we have learned that risk comes in many forms. At Newgate we utilise all modern quantitative forms of risk measurement and monitoring, but overlaying this is subjective judgement honed by the experience of a multitude of negative market environments.

Communication

Our investor partners receive a detailed quarterly report on the Fund’s progress. We detail returns generated, and where they have come from. We give our researched views on the economic and market environment, and regularly drill down to write about key positions within the Fund.

Please contact us if you would like to learn more about our investment strategies.