Wavestone Capital, the Australian equity long/short boutique founded by two Colonial First State fund managers in 2006, was looking for one analyst but hired two to make a team of five, on the assumption that markets will be driven by stockpicking instead of calls on macroeconomic trends in the near future.

Wavestone co-founer Ian Harding said there was a “deluge” of high quality applications for the one advertised analyst role, so the firm ended up hiring two – Nick Field, once of AMP Capital Investors, and Abbey Cook, from the Sydney-based global equity manager Vichingo Global Investors.

Harding said the two extra analysts had come aboard the Challenger-backed boutique at an opportune time, because he sensed returns from the Australian equity market would be less driven by macroeconomic calls in the near future, and more by fundamental analysis to determine stocks with high quality cash flows.

Harding said Wavestone’s portfolio had been long on defensive stocks last year, but the firm swapped out of this bias shortly after markets began to turn in March. He remains a believer in the commodity super-cycle, and says its six-month break in the midst of the GFC finished last November, with no end to the super-cycle now in sight given the inexorable rise of China as the world’s economic superpower.

Quoting performance numbers to the end of November 30, which had not been officially released last week, Harding said Wavestone’s flagship Absolute Return Fund (for sophisticated investors) had returned an annualised 4 per cent over the last two years, against minus 11 per cent for the ASX 200.

He said the fund, which charges 1.25 per cent and a 15 per cent performance fee over cash, was “just about back” to its high watermark.

Wavestone’s $160 million under management does not include any institutional support to date, because Harding said his firm was unwilling to discount its fees.

He said the firm also faced initial scepticism, because it appeared to be a group of long-only veterans trying to reinvent themselves as hedge fund managers. Harding was confident that perception had since changed, because some of the handful of shorts permitted in the portfolio at any given time have included Centro, shorted in September 2007 at $7.50 and closed out when it had fallen to 50 cents, and ABC Learning shorted at $3.50 and covered for $2 below that.

 

 

 

 

Leave a comment