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Partner with a billionaire to buy these 6 small-cap shares

Reviewing the investments of successful fund managers can be a great way to find ideas for your own portfolio. The best managers to watch are those who are investing their own money in a high-conviction portfolio with a focus on the long term potential of each business.

One Australian listed investment company which ticks all these boxes is Thorney Opportunities Ltd (ASX: TOP). It is managed by billionaire Alex Waislitz, who owns 30% of the fund.

TOP has been trading on the ASX since 2014 and invests alongside the private Thorney investment group which has operated for over 20 years with average annual returns reported to be above 20%.

Thorney is an activist investor, meaning they look for companies they can add value to, and take a more hands on role in their investments – similar to the approach of a private equity fund.

The TOP fund is a high-conviction portfolio, holding less than 10 core small-cap investments which currently include:

AMA Group Ltd (ASX: AMA)

AMA operates in the vehicle smash repair market and wholesales vehicle accessories. TOP holds around 5% of AMA’s shares, an investment which represents 18% of its portfolio.

AMA has been generating strong revenue growth through acquisitions as the industry consolidates and has been a good performer for TOP, with a return of around 100% in the last 12 months.

Long term, however, it is worth considering how emerging technologies might reduce the need for crash repairs in the future.

Austin Engineering Ltd (ASX: ANG)

Austin designs and manufactures products for the mining industry – clearly not a good sector to be in lately. Shares in Austin are down over 80% in the last 12 months, now only representing around 1% of TOP’s portfolio.

TOP’s latest investment update acknowledged the investment “was too early given that the headwinds facing companies operating in the resources sector globally remain strong”.

Diversa Limited (ASX: DVA)

Diversa is a financial services company which wholesales superannuation, risk, and investment products to specialist and niche advisors and fund managers. TOP holds over 12% of Diversa’s issued shares, representing 4% of its portfolio. Shares are up 30% in the last year.

Money3 Corporation Limited (ASX: MNY)

Money3 is a provider of short term personal loans and vehicle finance. With the sector troubled by regulatory concerns, shares are down over 40% in the last year.

Money3 has announced plans to exit the payday lending industry to focus on secured loans. It reported solid results for the first half of the financial year, with revenues up 45% on the prior period.

Money3 represents 19% of TOP’s portfolio.

Service Stream Limited (ASX: SSM)

Service Stream provides network services to utility and telecommunication providers and is involved with the rollout of the National Broadband Network. Around 30% of Service Stream is held by TOP and the private Thorney investment fund.

Service Stream represents 19% of TOP’s portfolio and has been the best performing investment, up over 250% in the last year.

TPI Enterprises Ltd (ASX: TPE)

TPI is a licenced processor of poppy straw concentrate for use in legal narcotics products such as morphine and codeine. There are few suppliers globally (around 10) and TPI looks to have superior processing technology. Shares are down 33% in the last 12 months and TOP’s investment represents 7% of its portfolio.

With growing global demand for its product, TPI will be an interesting company to watch. Currently at $2.70, Wilson HTM Equities Research has a 12-month price target of $4.55.

Time to invest?

TOP is trading at 54 cents, a slight discount to the value of its underlying portfolio (57.8 cents). In addition to the above investments, the fund currently holds around 20% of its assets in cash.

Given Thorney’s unique approach and management team, I consider TOP has a lot of potential and could be a good investment to hold as part of a balanced portfolio. For investors who prefer to manage their own portfolio of individual stocks, TOP’s investments deserve a place on your watchlist.


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Motley Fool contributor Matt Bugden has no position in any stock mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.