Its Over, page-10778

How to spot the ‘next CSL’ when every small cap’s an innovator
Alex GluyasMarkets Reporter
Oct 18, 2021 – 5.00am


Tobias Bucks believes global small caps offer some of the best risk-adjusted returns to be found anywhere, if you can identify the next titan out of 4300-odd companies vying for greatness. You just need to know where to look.
So, when Bucks moved to Australia in 2010 and was joined three years later by Simon Wood, who he worked with at $US382 billion ($515 billion) British investment manager Baring Asset Management, the duo spotted an opportunity that was too good to ignore.

Tobias Bucks, pictured at home in Sydney’s Paddington, is stripping and spraying a classic VW van in time for interstate borders to reopen. “When it’s sunny, it’ll be teal and sparkling like the ocean, which I’m hoping will look great parked in sand dunes,” he says. Janie Barrett
“We drank quite a few beers together, played lots of golf, went to the beach and Simon surfed and we just began to discuss the fact that no one was running an institutional-grade global small cap fund in Australia,” Bucks recalls.

“We wanted to deliver what we had at Barings, which was very good performance, and so we just thought, why can’t we do that in the Aussie market?”

Throughout 2015 and 2016, the pair spent their weekends and evenings rebuilding the quantitative and risk tools which underscored their stock screening process while still working their day jobs.

By 2017, they were pitching to Paul Xiradis and John Grace, the co-head of equities at $15.8 billion firm Ausbil, as well as its executive team in New York. Wood and Bucks began co-managing the fund in May 2018. It’s grown to manage more than $62 million.

Since inception, Ausbil’s Global Small Cap Fund has returned 13.4 per cent net of fees, outperforming its benchmark, the MSCI World Small Cap Net Total Return Index, by 1.64 per cent.

Over the past year, the fund has returned 41.9 per cent compared to the benchmark’s 39.1 per cent. The outperformance of the small cap sector is illustrated by the MSCI World Index, which tracks global large and mid-cap stocks, returning 27.8 per cent over the same period.

The goal of the fund is simple yet ambitious; finding high-quality companies that are going to be the next CSL, and buying them while they are cheap. “We think that all our stocks have the potential to be the next CSL, or the next Amazon, or the next Trade Desk – we have a laser focus on trying to buy those stocks that have the most unrecognised growth,” Bucks says.
Niche leaders

The process used to uncover these global giants revolves around finding companies in what Bucks refers to as “the sweet spot”, and riding the wave of returns that flow through as the business grows.

“The sweet spot for making money is finding a company that’s a niche leader, is pretty established (minimum market cap of $US500 million), has a solid management team, and a good product or service where they can expand globally,” Bucks says.
“And at the same time, they are buying either technology to put into their manufacturing and distribution, or buying manufacturing and distribution to enlarge what they can do with their technology or product.

“If you look at the businesses that have done that, like CSL for example, that’s why it went from $1 to $300 in 20 years.”
The fund has held drug equipment manufacturer Repligen since inception, during which time the Nasdaq-listed stock has surged nearly 600 per cent. It remains one of the fund’s top holdings.


Currently, its biggest position is Inmode, a Nasdaq-listed leader in non-invasive aesthetic surgery. Bucks doubled the fund’s position in Inmode at $US10 last year, the stock is now trading at $US85.

“Inmode has no competitors, it’s a niche leader, is expanding globally, is bringing out new products, is investing more in its manufacturing capability and distribution, and it’s got a management team that under-promises and over-delivers,” Bucks says.
While admitting it’s easier to discover these hidden gems in the healthcare sector rather than industrials, Bucks insists that 10-baggers can be found across all industries which is a major perk of their strategy.
“It allows the fund to outperform in both growth and value markets,” he says.

Fourth industrial revolution

Over a third of its holdings are currently positioned in industrials on the premise that the world is in the midst of a fourth industrial revolution. This is the Internet of Things, 5G, advanced software and artificial intelligence all colliding to create a productivity boom.

That was the conclusion of Bucks and Wood tracking small sub-segments of a dataset they built which provides intricate details on areas such as auto components in Eastern Europe, Japanese machine tools and areas of non-residential capital expenditure in the US.

“I think this is the biggest thing since James Watt looked at a steam engine and said, ‘I can use that’,” Bucks says. “All these supply chains have been stripped out of China, and have been placed in the US and Europe, and the people putting in these assembly lines are buying brand new equipment.”

“That hasn’t been done for ages because they’ve been mincing around and refitting equipment from the ’90s.”

The fund took a position in Swedish industrial technology company HMS Networks which makes products that enable industrial equipment to communicate and share information. Its share price has doubled over the last year.

“They’re the only company in the world that can translate the seven industrial manufacturing language protocols,” Bucks explains. “The software basically puts a box in the middle of your factory and lets all the machines talk to each other, even if they’re made in different countries or languages, and it lets your software run the factory.”
Van life

One of the first things Bucks did when he moved to Australia from London 11 years ago was buy a cheap tent and immerse himself in nature.

“The UK is not the sort of place to go camping, there’s a couple of days in early August where it might be hot enough to venture outside under a jacket,” he says.

To capitalise on his desire to explore the great outdoors, Bucks purchased a 25-seat Toyota Coaster minibus in 2014, stripped it, and created a portable home with an in-built kitchen.

The vehicle’s limited ability to venture off-road meant Bucks has now moved on to an old-school VW T3 van which he is in the middle of stripping. He has plans to spray paint it a metallic dark green, readying it before borders reopen.


“It’ll be dark green at night and then when it’s sunny, it’ll be teal and sparkling like the ocean, which I’m hoping will look great parked in sand dunes,” he says.

“I’ll be chucking the bike on the back of the van and I want to drive up to the Atherton Tablelands in Queensland and to Lake Tinaroo. I’ve also got to get on a plane as soon as possible.”

Depending on the circumstances, the portfolio manager says COVID-19 has in some cases allowed for frequent and higher quality company meetings which are more informative than the physical conferences that went on before the pandemic.

“Virtual meetings are great when you already know someone, but if you’ve never met them before, or never seen how they operate, or where they are, that’s not great,” he says.

“We need to start kicking tires, so we will definitely be visiting our Japanese, European and American companies next year in person because these companies are small and covered by random people, so we have to rent cars and drive out sometimes to remote locations.”