And another

This fund manager is beating the rest

Sarah Jones

Markets editor

MONDAY FUNDIE

ROBERT GREGORY

FOUNDER GLENMORE ASSET MANAGEMENT

In a market saturated with Aussie equity funds, this one-man band has come out on top thanks to some cracking stock bets.

PHOTO: EAMON GALLAGHER

‘‘It’s hard for me to say why I’m doing it better than some of the others, but you do definitely get better at identifying undervalued companies,’’ fund manager Robert Gregory says.

Gregory, the founder of Melbourne boutique Glenmore Asset Management, is trying to explain how, in a market saturated with Australian equity funds, he – a one-man band – appears to be doing it better.

So much so that his $26 million equity portfolio beat 127 competitors to rank first in the latest Mercer survey over three years, and fifth over one year. And all without a research team to help him sift through the more than 2000 companies listed on the ASX.

His path is a well-trodden one: university, a few years on the sell side, a few years on the buy side before a promotion to portfolio manager, only to then throw it all in to start his own fund, which he did in February 2017.

But what sets him apart from the hundreds of others vying for assets is not an overly complicated investment strategy – he’s a bottom-up stockpicker who invests in Aussie equities – nor that he can buy the shares of any listed company regardless of its size, nor that he has $5 million of his and his wife’s own money co-invested.

Rather, it’s by how much he is beating the market.

Over one, three, and five years the Glenmore Australian Equity Fund has more than doubled the return of the All Ordinaries Accumulation Index net of fees. And since its launch seven years ago, the total return is 19.4 per cent a year versus just 8.9 per cent for the benchmark.

‘‘If I were to highlight one thing, it would probably just be my due diligence process and having a pretty high hurdle for the types of quality businesses that I invest in,’’ Gregory tells The Australian Financial Review.

‘‘I spend a lot of time performing really deep due diligence and analysis into the companies – I speak to management a lot, I read a lot of annual reports, talk to customers, competitors and even customs, if I can.’’

His investment process can take him anywhere from a couple of weeks to a couple of years to execute on. He’s also got a pretty strict valuation criteria and has a watch list of stocks that he may invest in, one day.

‘‘There are some companies where the earnings trajectory is clearly improving and might be shorter [time frame], but there are others that I’ve definitely spent years and been patient and waited for the right time to invest, like in the coal stocks a few years ago,’’ he adds.

There are other things too. He likes companies with self-funding business models with cash flow generation, and he avoids the more speculative end of the ASX where companies have no earnings track record, such as a biotech or explorer.

He’s also not that interested in the large caps, such as the big four banks.

Instead, Gregory has honed his skills in the mid caps, where the majority of his 20 to 30 stock portfolio resides.

These are companies with a market value of between $400 million to $5 billion, which he says have the best prospects for earnings growth and the best ability to ‘‘grow valuation materially’’.

‘‘It’s always been a pretty lucrative place to focus on, and I can’t really see that changing too much,’’ Gregory says.

‘‘The beauty about the ASX is that there are a lot of companies out there that are often in that ripe position where they’re either on the cusp of earnings growth, or they’re out of favour for whatever reason.’’

The size of assets he’s running, and his lean business model, is perhaps another factor in his performance. It means that if Gregory has a strong conviction on a stock, he can invest ‘‘a meaningful amount’’ without the hoop jumping at larger firms.

His long-term target is to cap the fund’s assets at around $100 million. Any bigger and he worries that it will start to impact his ability to invest. He’s also planning to hire another analyst.

As for his returns, over the fund’s seven-year history Gregory has made some cracking bets.

Like buying marine services provider and $1 billion takeover target MMA Offshore. He bought the shares back in November 2022 when they were trading around 40¢ apiece. They last traded at $2.68 and are the biggest holding in the fund.

He snapped up Chris Ellison’s Mineral Resources in 2017 when the shares were trading around $10 apiece (they last traded at $57), and he bought into GQG Partners run by star stockpicker Rajiv Jain in March 2022 when they were bouncing around $1.27 a share. They’ve since more than doubled.

He points to other examples that have all gone on a tear since their lows in 2017 including Hub24 (up 967 per cent), Pinnacle Investment Management (up 311 per cent) and Whitehaven Coal (up 255 per cent).

‘‘I wouldn’t say there’s been one stock,’’ Gregory says. ‘‘I know some fund managers do have one stock they have a really interesting story about ... but a lot of these companies I have followed for a long time, watching them and talking to management, seeing them execute. You can see the upside if they do it well.’’

For Gregory, it comes down to scouring the ASX for companies where the market is too pessimistic on an operating outlook, like in the case of MMA Offshore back in 2022, or when a company is performing well but the trajectory of earnings is even better than what is priced in, such as GQG.

‘‘It’s really about just trying to find those opportunities where there is mispricing or undervaluation,’’ he adds. ‘‘Often a great investment can simply come from a company that is already a very good business.’’

As for his next big bets, it seems he’s not afraid to dive into a stock or sector that has been badly beaten up.

Gregory is sticking with the coal sector, for example – which includes Whitehaven Coal, Stanmore Resources and New Hope – that he says is at the ‘‘lowish’’ point of the cycle, ‘‘The attraction there is just there is very little new supply coming on, demand is still quite resilient, and they’re very cheap,’’ he adds.

He’s also ‘‘pretty positive’’ on some of the retail stocks (he owns Retail Food Group, Universal Stores, Nick Scali, and Collins Foods), which he says are ‘‘well-run and well-placed to navigate through this tricky period’’.

He’s doing ‘‘more work’’ on consumer discretionary stocks and other parts of the ASX where companies have been hit by the cost of living crisis and interest rates.

‘‘What we’ve learned over time is that often the best time to invest in these kinds of stocks is when expectations are very low,’’ he says.

And he’s keeping his eye on lithium, despite the dire predictions from the sell side.

He’s considering adding to MinRes (it’s dropped 18 per cent this year) and buying more shares in Pilbara Minerals, based on the lithium price stabilising around $US1000 a tonne.

‘‘My view on the economy right now is it’s a bit subdued, but it’s not so bad that it’s going to stop me from investing in great businesses,’’ he says.