The fund’s main activity is to take long positions in listed small/midcap companies (typically €100mn-€3bn in size), positioned at the bottleneck of 3-5 key Emerging Growth Technology themes.
Our themes are selected to reflect major structural technology shifts that we see persisting for many years (e.g. the rise of e-Commerce or Emerging Market technology adoption). The key beneficiaries of these shifts are identified by ‘drilling down’ into the value chain. We characterise ‘bottleneck companies’ as those providing a crucial product/service, typically with high barriers to entry around technology, process knowhow or first-mover advantage.
Our preference is to find the ‘pure-plays’, avoiding companies whose earnings exposure is diluted by factors outside our themes. For a long holding the valuation should be sufficiently low, and the potential for earnings surprise sufficiently high, that we believe it has the potential to be a ‘multiple-bagger’ if held on a 3-5 year view.
As a by-product of extensive research into each long theme we sometimes discover interesting shorting opportunities, which may enhance returns, especially during times of large valuation bubbles.
Our shorts are categorised as either ‘fakes’ or ‘dinosaurs’. A ‘fake’ is a company which the market believes to be at the bottleneck of an Emerging Growth theme but our checks and detailed knowledge of the space suggest otherwise. A ‘dinosaur’ is a company with mature technology whose profits seem likely to erode as a direct consequence of the newer, faster-growing small businesses we hold on the long-side of our portfolio.
We apply strict criteria before committing capital to short ideas, looking for: unsustainable earnings, excessively high valuation, a weak balance sheet and the likelihood that external finance will be needed over the long-term for the company to remain as a going concern.