EAM Investors, a San Diego-based global small and micro-cap specialist manager, is looking to capitalise on the “innovation, disruption and re-invention” happening in the corporate world, especially in the small-cap space. “We’re looking for change in a company at the margin,” according to Travis Prentice.
On a visit to Australia last week, the chief executive and CIO of EAM Investors said that the analysts and portfolio managers looked for “evidence of a turn in earnings, we look for an inflection point, we want to see a fundamental trend which is beginning to accelerate”.
The fund manager, most of whose staff fell out of another Californian growth manager, Nicholas Applegate, in 2007, looks for a discount to what it sees as the future value of a company. Prentice, a co-founder, launched the firm’s global strategies in 2011.
Nicholas Applegate had an Australian operation for several years in the late 1990s and early 2000s, before the firm suffered a haemorrhage of staff losses, starting in 2006, from the head office.
“Change creates the opportunity to capitalise on mis-pricing,” Prentice says. He has been visiting Australia to talk with clients and consultants for about five years. “We concentrate on out best ideas. For example, a big proportion of the banks in the US are in that category.”
Global small and micro-cap stocks, on average, are a lot bigger than the Australian variety. The average micro-cap stock in EAM Investors’ US portfolio has a market cap of about US$1 billion.
The firm’s Australian representative, Steve Bramley of Pacific Current Group, a third-party marketer and multi-affiliate manager, says there has been a lot of interest from Australia in global small caps. About one-quarter of EAM Investors’ global small-cap portfolio was sourced from Australia and New Zealand, Bramley said. There was also an Australian client in the manager’s micro-cap fund.
Notwithstanding the larger market cap of the portfolio compared with Australian stocks, Prentice says that liquidity is always an issue. “You have to be mindful of stock-by-stock liquidity,” he says. “If you move around the portfolio9 too much it costs you.”
He says EAM Investors has an efficient trading system, with three dedicated dealers. “We’re consistently rated above our peers in the dealing surveys. It’s another way we can add value.”