Celebrating a decade for the WaveStone Australian Share Fund

Upon reaching the milestone 10-year anniversary of the WaveStone Australian Share Fund, we would like to take the opportunity to say thank you for your ongoing support.

Having founded WaveStone in 2006, we launched the Australian Share Fund in 2014.  Across market cycles and through different macro environments, we have delivered a net excess return for investors above our benchmark in 8 out of the last 10 years.  We believe that this track record and the growth of the business is built on three key pillars – Consistency, Culture and Connections.

1. Consistency

The rationale for starting WaveStone was simply that we love what we do.  Since the early days of our investment careers, we have kept our investment approach consistent over time. We invest in quality companies with a Sustainable Competitive Advantage (SCA).  Our approach is to analyse the qualitative aspects of a business first.  If a company passes that screen (with a high SCA score across both company and industry factors), we conduct deep research on the company.

We look for Australian businesses that can successfully deliver earnings growth over the long-term.  Our bottom-up approach focuses on choosing stocks that dominate their industry and can expand and replicate this success offshore rather than predicting macroeconomic changes.  We know the companies that we invest in and importantly those that we don’t. 

To deliver more consistent alpha also requires discipline in position sizing and a continuous focus on each stock’s marginal contribution to risk.  Each stock in the portfolio must justify its inclusion on an ongoing basis.  We constantly ask ourselves, if we did not own it, would we buy it today?   

2. Culture

Culture takes time to build and having a team that works well together is incredibly important.  Prior to WaveStone, the Portfolio Managers, Raaz Bhuyan and Catherine Allfrey worked together at Colonial First State.  We have a long history and shorthand built over time from a position of respect for each other’s talents.   We look to instil this collaborative dynamic across the whole team.  As the team has grown, we look for talented analysts that are aligned to our investment philosophy.   

Through decades of investing, we have built our knowledge of Australian companies and as a team we are constantly learning and adapting as new information comes to light.  We have a performance culture and provide career progression opportunities and reward the next generation to ensure their continuity in the business long-term.  We believe that diversity within the team brings different ideas.  This diversity of thought helps us to avoid value traps and group think. 

3. Connections

Most fund managers look first at the numbers.  We start with the qualitative factors that we think make or break a business before modelling each company and conducting financial analysis.  This includes an assessment of the management team and the board of a company.  The ability to eyeball a CEO, to ask tough questions, to probe beyond the information provided on an analyst call or in financial statements can be the difference between investing in a business that looks good on paper, or deciding that the management’s experience, financial acumen or strategy is not investible at this time.  This can include questioning a bank CEO on their cash back policy for new mortgages.  Or understanding what a management team is doing to capitalise on a product recall faced by a competitor.  Or querying a company’s plans to hedge their debt or foreign exchange exposures.  Or drilling into the forecasts provided by a mining company for their production targets.  Are they conservative or dependent on a continuation of the prevailing conditions?   

This ability to probe further is also needed when assessing the ESG risks of a company.  Direct engagement can influence change at investee businesses and help to address concerns that have been identified to both enhance returns and manage risk. 

The ability to make this qualitative assessment of a business is dependent on having the right relationships.  While this is most relevant for assessing the calibre of the management team, it also includes meeting with a company’s competitors, their suppliers, and their customers both domestically and offshore.  We believe that this 360 degree approach provides a well-rounded picture of a business and is particularly important given our focus on investing in Quality businesses at a reasonable price.   

We have learned that being disciplined and steadfast to our investment approach not only means that our investee businesses meet our investment criteria but that no matter what the market throws at us, we can build resilient portfolios.   

We believe that a focus on Consistency, Culture and Connections is what sets us apart and leads to a successful, repeatable outcome for investors. 

We thank you for your continued support and the trust you have placed in us over the past 10 years and look forward to continuing to deliver returns for our investors.   

This material has been prepared by WaveStone Capital Pty Ltd ABN 80 120 179 419 AFSL 331644 (WaveStone) the investment manager of the WaveStone Australian Share Fund (Fund). Fidante Partners Limited ABN 94 002 835 592 AFSL 234668 (Fidante) is a member of the Challenger Limited group of companies (Challenger Group) and is the responsible entity of the Fund. Other than information which is identified as sourced from Fidante in relation to the Fund, Fidante is not responsible for the information in this material, including any statements of opinion. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable to your circumstances. The Fund’s Target Market Determination and Product Disclosure Statement (PDS) available at www.fidante.com should be considered before making a decision about whether to buy or hold units in the Fund. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Past performance is not a reliable indicator of future performance. WaveStone and Fidante have entered into arrangements in connection with the distribution and administration of financial products to which this material relates. In connection with those arrangements, WaveStone and Fidante may receive remuneration or other benefits in respect of financial services provided by the parties. Fidante is not an authorised deposit-taking institution (ADI) for the purpose of the Banking Act 1959 (Cth), and its obligations do not represent deposits or liabilities of an ADI in the Challenger Group (Challenger ADI) and no Challenger ADI provides a guarantee or otherwise provides assurance in respect of the obligations of Fidante. Investments in the Fund(s) are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Accordingly, the performance, the repayment of capital or any particular rate of return on your investments are not guaranteed by any member of the Challenger Group.