In the vast world of investing, where decisions can be complex and markets unpredictable, adopting a strategic approach becomes paramount. One such strategy gaining traction among private investors involves cherry-picking stocks from small, successful fund managers. In this article, we’ll explore the advantages and considerations of this approach, using the notable examples of Rockwood Strategic (LON:RKW) and Odyssean Investment Trust (LON:OIT).
The Appeal of Small Successful Fund Managers
Small fund managers often operate with agility, making nimble investment decisions unencumbered by the scale and bureaucracy faced by larger funds. Rockwood Strategic and Odyssean Investment Trust exemplify this, navigating the challenging terrain of small-cap investments with notable success. Rockwood Strategic (LON:RKW) has a clear strategy and Richard Staveley supported by Rockwood’s advisory board is prepared to do the hard yards to make it work. Although no one gets it right all the time his success rate in an awful market for small caps is impressive.
- Defined Strategies and Skilled Management: These funds, led by Richard Staveley and managed by Stuart Widdowson and Ed Wielechoski, boast clear investment strategies. Staveley’s success rate in a challenging market for small caps, as mentioned by investors, underscores the effectiveness of a well-defined approach.
- Liquidity Advantage for Private Investors: Private investors enjoy a significant advantage over funds when it comes to liquidity. Unlike funds that might face challenges in entering or exiting positions, private investors can freely navigate their portfolios, benefiting from the due diligence performed by successful fund managers.
Cherry-Picking Strategy
Cherry-picking involves selecting individual stocks from a fund’s portfolio based on the investor’s preferences and risk appetite. In the context of Rockwood Strategic and Odyssean Investment Trust, this strategy allows private investors to leverage the funds’ research and decision-making processes.
- Due Diligence by Fund Managers: Successful fund managers often conduct in-depth due diligence before adding a stock to their portfolio. Private investors can capitalize on this by cherry-picking stocks that have undergone rigorous scrutiny, potentially minimizing risk and increasing the likelihood of successful investments.
- Flexibility and Ease of Trading: The ability to cherry-pick stocks provides investors with the flexibility to choose specific companies they believe in. Moreover, private investors can buy and sell these individual stocks with relative ease, avoiding the liquidity challenges faced by funds.
We as private investors we don’t have any of the massive liquidity problems that funds have, getting in and out of their positions. So as Staveley said yesterday, they have to think about potential exit routes before they buy any share – and it’s only a tiny fund, at about £50m. Whereas we can just look at Rockwood’s top 20 positions, and cherry-pick the ones we like, knowing that the best performing small caps fund has done the due diligence for us. That strikes me as a very good strategy. We can buy & sell them with relative ease, so why buy the fund?!
Considerations and Challenges
While cherry-picking stocks from successful funds offers several advantages, investors must also be mindful of potential challenges:
- Timing of Disclosures: Funds may not disclose holdings below a certain threshold, leading to potential challenges in tracking the accumulation of a position. Investors should stay vigilant for announcements and news that might impact stock prices.
- Discounts to Net Asset Value (NAV): Monitoring whether the fund is trading at a discount or premium to its NAV can be crucial. A fund trading at a discount might present an opportunity for investors to consider the fund itself rather than cherry-picking individual stocks.
Conclusion: Cherry-picking stocks from small successful fund managers like Rockwood Strategic and Odyssean Investment Trust offers a strategic and informed approach for private investors. By leveraging the due diligence and success of these funds, investors can potentially enhance their portfolios with well-researched and promising small-cap investments. However, it’s essential to remain vigilant, considering factors such as disclosure thresholds and the fund’s overall market positioning.
