I don't disagree with your ticks, but it's probably still a bit...

I don't disagree with your ticks, but it's probably still a bit early for most big super funds.
It may well happen over time as the price goes up - then MSB will be included in the main indices, and as competitors buy it, there's a "safety in numbers" for other fund managers taking the plunge in a thinly traded and poorly understood stock.

The following comments apply mainly to big Australian funds who don't have a good history of investment in stocks like MSB until much later in the history of a company's profits and acceptance by other funds.

1. It's not in their index, so most won't touch it til it is.

2. If it isn't in their index, it doesn't "hurt" them if it goes up - so they don't face the same pressure as the shorters.

3. Their main pressures are to not underperform their peers, not underperforming their index and impressing the gatekeepers who recommend their funds.

4.To this end, some of the smaller managers may buy MSB if they are specialist biotech funds or if they are generalist funds which are allowed in their mandates to have some small % of their holdings outside the index (usually with restrictions around liquidity, market cap, debt/equity ratios, earnings etc). But because these funds are small and the holdings are limited, there isn't a huge pot of gold waiting to invest...yet

4. Some aren't bound by index rules, but if they are big funds then they need to buy at least 0.5% of the fund in a stock or the "gatekeepers" will pull their ratings, arguing the fund manager is losing focus scattering money on small holdings. If funds/fund managers have less than $3bn in Aussie shares they are considered small or boutique - so cashed up big funds would need to spend over $15m on a minimum holding in MSB or around 2.5% of the company. That's a big holding (especially in a low liquidity stock) and remember it's an absolute minimum for them - but those bigger funds could have multiples more than $3bn in Aussie shares - so it becomes a big risk if something goes wrong they can't get out and they end up looking stupid for getting stuck in a non-index stock. We really don't want those sort of guys in it anyway because they will dump a small holding without regard to price as it doesn't really affect their performance and once it's gone the embarrassment ends.

Now let's consider some of the giant overseas funds:
1. The dynamic is different as the tradition of placing some risk capital in a portfolio of small holdings is well established, there have been lots of big wins over the years and they would hold several of these stocks. Losing money on a few of them is considered part of the strategy as you never really know which one is the next 10-bagger and which is the next flop - so the embarrassment factor doesn't come into it in the same way as some conservative Aussie analyst and fund manager taking a fly on an unproven stock

2. There are lots of small specialist funds overseas who have only $200-300m in them and are not constrained by the Index. They can buy a significant % in their fund without getting too much of a % of MSB's capital and thus can retain their flexibility. This is opportunistic investing and these guys have a big universe of stocks they can select from - if they miss one it doesn't really matter, so they don't really feel pressured to buy either.

3. I like the fact that the big overseas holders (M&G/Prudential, Capital etc) have been long term holders with a track record in investing in innovative stocks and are not limited by the Australian index or what other Aussie funds are doing AND that their holdings represent a measly 0-0.1% of their FUM - they can keep buying small amounts forever and wouldn't be feeling any institutional pressure (though maybe the individual analyst feels a bit). We have seen them add to their holdings over the past year and this is putting a base under the price - they just soak it up when it gets cheap.


Finally, I think Aussie super funds WILL eventually buy MSB, the smaller clever boutiques will go first, then there could be years of gradual entry by big funds as MSB firstly enters the index, then the market cap and liquidity rise further, then profits emerge in 2-3 years. If the technology works as it is currently indicating, this stock could be multiples of the current price in 3 years time and there would be some short term spikes in the meantime.
Those spike kill the shorts, but don't make any difference to the pressure on the big funds at this stage.

There's lots more I could say on this, but I can sum it up by saying the only people with real pressure on them at the moment is the shorts. That pressure isn't strong yet, but remember that pressure = force/area...the force is the announcements causing more buyers and the area is the declining amount of net shorting by others. Too much pressure and the only way to go is up!