Frank Villante of Celeste Funds Management on concentration and conviction.
Laura Lallos, Morningstar magazine’s managing editor, interviewed Villante in July.
1. How has the Australian small-cap market evolved since you started investing there?
The emergence of China as the pre-eminent economy globally is the most significant event that I have observed since I started investing. The economic rise of China has had a profound impact on how both small and large companies operate, be it related to place of manufacture, supply chain change, or end sales destination.
2. Have you adapted your investment process over time?
We have always focused on identifying situations where intrinsic worth is inappropriately valued, where cash flows are priced incorrectly. Our process has always focused on business model robustness, accounting quality, and people at a board and management level. Where we find that we are being contrarian and investing in companies or sectors that are out of favor, we are comfortable backing our view.
3. Why run a concentrated portfolio?
We have confidence in our investment process and in the team applying it, and believe that a concentrated approach is the right path to follow if we want to achieve our alpha objectives.
4. What gives you the conviction to stick with a stance through rough times?
Experience, patience, and a structured investment process can help you work out whether to hold a position or look for the exit door. Investing can generate peptic discomfort, but it is often the situations that engender the greatest introspection that can deliver the most attractive returns.
5. What skills do you value most in an analyst?
Analysts need be highly numerate and have good communication skills. They also need to have empathy and an ability to relate to and understand people. The best analysts are often people who have an eclectic mindset and who can engage with people across all strata of society.
6. Will Celeste Funds Management expand to offer a more diverse lineup?
Celeste likes being focused on the small-company sector. We are attracted to the embedded inefficiencies that exist in the small-cap space. One added benefit is that the small-cap sector is varied, stimulating, and rarely lacks opportunity.
7. Where would you be working now if not within financial services?
I quite like the work done by an Australian charity called Cooperation in Development (CO-ID). CO-ID establishes schools in Bangladesh, with local communities providing the land. Its model is exemplary, and I’m attracted to the idea of it being rolled out in other developing countries.