Sandon Capital is a value activist investor. What does that actually mean?
It means we focus first and foremost on identifying companies that are undervalued and underperforming – and then use activist techniques to try to improve the situation. For example, we might engage with a company board on operational or strategic initiatives that we believe will grow value for all stakeholders. If we encounter inertia or resistance, we will look to persuade and influence other investors. If a majority of investors are of similar views, then boards will usually follow. We are proportional owners of the companies in which we invest – not just owners of pieces of paper (i.e. shares) – and we are prepared to exercise all the rights available to us as owners of the companies.
You’ve had several wins on stocks where you’ve pushed for change: BlueScope Steel (ASX: BSL), Boral (ASX: BLD), Iluka (ASX: ILU) and Fleetwood Group (ASX: FWD) to name a few. How do wins like that translate into fund performance?
Our flagship Sandon Capital Activist Fund has successfully returned 12.2%* per annum for investors since it was founded in April 2008, versus 8.2%* per annum for the S&P/ASX 200 Accumulation Index over the same period.
The share market continues to reflect anxiety around global events, be it developments in the coronavirus pandemic or the war in Ukraine. How do you deal with this market volatility?
This environment presents both threats and opportunities, and we try to understand where both might lie for our portfolio. In the worst-case scenario, we might look at some of our investments to see how they will survive the current challenges. In the best-case scenario, we are able to pick up investments at very attractive prices, in cases where companies have been sold down to prices far below any sensible estimate of their value. Above all, we stay focused on our activist value investment philosophy. That’s how we navigate through this turmoil. We do not try to predict when the turmoil might come to an end.
What’s your long-term market outlook?
We believe that Australia is well placed to grow economically for the foreseeable future, in light of government stimuli, the resumption of immigration and population growth. Of course, we are aware of what’s happening in the wider world, but we don’t use it to predict share price movements or to make investment decisions.
Sandon Capital has been around for more than 12 years. Have you changed the way you do things?
One of my investors said his mother used to tell him to make sure that “what’s on the label is exactly what’s in the tin”. We are very conscious of that. We try to give a good account of what we do and then allow people to decide if what we do is for them. We do not try to be everything to everyone.
What lessons have you learned since starting Sandon Capital?
That if you want to outperform, you have to do things differently. You cannot do things the same as everyone else and expect results that are better than everyone else’s. To do what we do, we need to be outsiders.
*As at 28 February 2022.