Wanis, one of three active investment managers presenting to advisers at Pinnacle Investment Management’s equities roadshow in Wellington this week, said most small cap funds are very concentrated and contain 30 to 40 stocks, but Longwave’s fund contains 110 stocks and employs different investment styles “to smooth out the journey for our clients.”
In the last five years, the fund has delivered 9.4% annual returns net of fees, compared with the 7.1% returns from its benchmark, the S&P/ASX Small Ordinaries Accumulation Index.
Highlighting the importance of resources to the Australian economy, Wanis stressed that his company doesn’t ignore any parts of the market and aims for a robust portfolio that will perform in most economic environments.
Its investment universe contains about 1,000 stocks and combines both a fundamental and a systematic approach and has been able to achieve more alpha, or outperformance, at lower fees – its management fee is 0.89% and it charges no performance fee.
He showcased TechnologyOne, a software-as-a-service (Saas) provider of enterprise solutions, as an example of one of the stocks caught up in the “saaspocolypse,” as investors feared advances in AI would undermine the businesses of Saas stocks.
TechnologyOne has delivered 15% in reported earnings per share (EPS) growth since 2009, at a time when companies have been emphasising “adjusted” EPS, which has increasingly diverged from reported EPS
“When people became concerned about AI disruption, they decided the adjusted EPS wasn’t a suitable way of looking at the business.”
Wanis said there’s a lot of opportunity to invest in AI in non-obvious businesses, ones that are using AI to improve operating performance, but that’s an area the market isn’t necessarily focused on.
“Companies seeing revenue growth and no cost growth are showing AI is paying off.”
Longwave hadn’t owned another stock, communications network company Megaport, for many years when it was demonstrating strong performance but changed its mind and bought the stock in late 2024 when it was able to acquire it relatively cheaply after the share price plummeted.
Last month, Megaport reported 12% first-half revenue growth after 14.6% growth the previous year, and has maintained gross margins between 70% and 72%.
“People draw conclusions about a company from the share price without looking closely at performance,” he said.
“There’s always opportunity as a fundamental investor in trying to differentiate between what the market is saying and what you as a manager think has been unfairly punished.
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