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ASCOF +80% in successful first three years


Three years ago we launched the Appian Small Companies Opportunities Fund (ASCOF) as we believed many quality small and mid-cap companies were under-owned and undervalued, presenting compelling investment opportunities. Our approach has been very successful and this fund has risen by 80.5% over the three years since it was launched at the start of October 2012. This is equivalent to a compound annual return of 21.8% and includes a gain of 22.7% made in the first nine months of 2015. 

In the aftermath of the financial crisis small and mid-cap stocks were indiscriminately shunned in herd-like fashion. Consequently, many well-run companies with robust business models were unfairly overlooked and were valued at levels materially lower than warranted. When investors can identify high quality assets which are significantly undervalued the potential to realise superior returns over time exists. As equity markets recovered and value became less apparent in large cap stocks, investors once again started to recognise the undervaluation of smaller companies. Our holdings benefited as small and mid-caps regained favour with the broader market.
 
If the market fails to recognise undervalued smaller companies corporate buyers eventually will. If anything, we underestimated the potential for corporate activity amongst our holdings, as 12 stocks owned by the fund have been taken over, and at healthy premiums to their pre-bid share prices. This number represents a significant portion of our holdings given the fund aims to own between 25 and 30 stocks at any point and has only been invested in a total of circa 40 stocks since inception.
 
Smaller companies are more nimble and capable of growing substantially faster than larger companies. In the past 18 months alone, two stocks which are among the fund’s top holdings each acquired businesses which were larger than the size of their existing operations. Both of these ‘transformational’ acquisitions have been very successful, and the share prices of both stocks have been rewarded with handsome gains. 
 
While small companies may be less overlooked than they were three years ago, many opportunities remain for the discerning investor to uncover well-run businesses that are under-appreciated by the market. Furthermore, consolidation activity is unlikely to abate given large growth-constrained corporates with strong balance sheets are looking to M&A to drive growth particularly as interest rates are low. Meanwhile, the more nimble and entrepreneurial of the smaller companies remain capable of growing at a faster pace than larger companies.  
 
While returns from here should not be expected to be as spectacular as those of the past three years and a higher degree of volatility may be likely, the success of the ASCOF over its first three years reinforces our confidence that our approach to smaller companies can continue to deliver over the long-run. At the end of the day, identifying high quality assets which are undervalued remains a fundamentally sound investment strategy. 

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WARNING: The value of your investment may go down as well as up. Past performance is not a reliable guide to future performance. These investments may be affected by changes in currency exchange rates.

Appian Asset Management is regulated by the Central Bank of Ireland. No part of this document is to be reproduced without our written permission. This document has been prepared and issued by Appian Asset Management on the basis of publicly available information, internally developed data and other sources believed to be reliable. It does not constitute an offer or an invitation to invest, or the provision of investment advice. No party should treat any of the contents herein as advice in relation to any investment. While all reasonable care has been given to the preparation of the information, no warranties or representation express or implied are given or liability accepted by Appian Asset Management or its affiliates or any directors or employees in relation to the accuracy fairness or completeness of the information contained herein. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. 

Appian Unit Fund Prices  
1 October 2015 
Appian Value Fund
Appian Equity Fund
Appian Small Companies Opportunities Fund
Appian Liquidity Fund
Appian Ethical Value Fund
136.08   
154.40     
180.53   
106.43   
94.62  

For more detailed information on each of our funds click here

Patrick J Lawless
Managing Director
Eugene Kiernan
Head of Investment Strategy
Frank O’Brien
Consultant
John Mattimoe
Head of Equity Analysis
 
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John Flavin
Senior Relationship Manager
Tel: (01) 662 4053 direct
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