Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Discovery Fund portfolio managers Chris Bainbridge and Mark Devcich explain how they pick ASX shares to include in their exclusive high-conviction portfolio.
Investment style
The Motley Fool: How would you describe your fund to a potential client?
Chris Bainbridge: We're a high-conviction active manager who seeks outstanding performance and we do that by having one fund, the Founders' Fund, which invests in up to 20 of the best listed companies on the ASX and NZX.
MF: What's the investment philosophy?
CB: At a really high level and keeping it super simple, we've called it the Founders' Fund for a reason. We aim to invest in founder-led businesses, high returns on investor capital, with a catalyst to realise our variant perception on the business. We're looking for those three aspects.
We were trying to take a three- to five-year timeframe, but often we find that companies realised our valuation in a much shorter time frame.
MF: You mentioned it's a high conviction fund, so how many stocks do you hold at any given time?
CB: We target around 20 in the portfolio and that is reasonably concentrated within the top 10 names.
We believe that if you're picking an active manager, then you're picking them for their stock-picking ability and you want to be able to express that ability as much as you can and it really comes down to concentration. It's good to have a lot of good ideas — so when you have one, you want to make it count.
MF: It's been pretty turbulent for equities the past year. Where do you reckon it's all headed this year?
Mark Devcich: It's not something we spend a lot of time thinking about where the market is heading, as it's obviously very difficult to predict, especially in the short-term.
However, we do feel relatively more constructive in Australia compared to the Kiwi market. We are only invested in NZX and ASX, but clearly more convicted around Australia, given strong commodity prices, immigration restarting, international education and also the pool of funds that is generated from compulsory superannuation.
So we feel that Australia is in a relatively good spot compared to the rest of the world. Markets may be volatile, choppy, they may even hit lower from here on a global basis, but we feel Australia's one of the shining spots around the world in terms of its equity markets and its economy for the next 12 months.
Tomorrow: Chris and Mark's two best ASX shares to buy right now
