Personal finance and KiwiSaver columnist at the NZ Herald

Business Focus: Marching to their own beat

Manager's focused strategy pays off in ratings, writes Helen Twose
PIE Funds founder and chief executive Mike Taylor.
PIE Funds founder and chief executive Mike Taylor.

A local boutique investment manager is not only dishing up results for its clients, but is rated among the best in the world.

Auckland-based Pie Funds this month grabbed seventh place out of 148,000 funds globally ranked by Morningstar - nudging it up one spot from its previous position.

Rankings aside, any investor who put $100,000 into Pie Funds' flagship growth fund when it launched in 2007 would now have an investment worth around $532,166.

Founder and chief executive Mike Taylor says the recipe for its top 10 success is nothing more than common sense mixed with a dash of Warren Buffett-style methodology.

"Simply find a good business that is growing, buy it at a reasonable price and hold on to it," he says.

"Obviously it's a little bit more complicated than that, but that is it in a nutshell.

Taylor says his job is to spot good businesses before everyone else does. "The skill of that is to look at a business and say: what do you think this business could look like in three to five years' time?"

Taylor says his portfolio strategy does set him apart from a conventional fund manager.

Rather than buy into 50 or 100 companies across the market, Taylor says his funds might only invest in a dozen or so companies.

"I'd rather put my money into my fifth best idea than my fiftieth best idea because your fiftieth best idea is never going to be as good as your third or fourth.

"There are only so many good things that you can buy, so you want to be disciplined about how you allocate your money so you're ensuring you're always putting it into your top 10."

Traditionally, a fund manager will look to "own the market", says Taylor, meaning there isn't much discrepancy between what the market returns and what these fund managers can achieve.

"I'm just looking for 12 good investments regardless of what the market does, so I'm not really focused on the market, I just want to have a share in a well-run business." Those well-run businesses also tend to be small.

"It's easier for a small company to grow ten-fold than it is for a large company to grow ten-fold.

"Sure, there are exceptions like Amazon and Apple, but generally it's small businesses that grow to be large businesses, not large becoming mega."

There are only so many good things that you can buy, so you want to be disciplined.
Mike Taylor, PIE Funds

Australia's Vita Group is an example Taylor gives. Pie Funds invested in the mobile phone store operator back in 2012 when the shares were worth 23c each.

Led by an entrepreneurial CEO, the company has not only ridden the smartphone wave, but it has developed systems, processes and a company culture to turn average performing retail stores into highly profitable ventures. This week Vita Group stock is trading around the A$4.76 ($5.07) mark.

In the five years Pie Funds has held its stake in Vita Group, it's made 20 times its original investment, says Taylor.

Not every investment has been a winner, but Taylor says when investments start stuttering he doesn't muck around and exits fast "because they generally get worse and worse".

In terms of timing the market, Pie Funds' launch in 2007 was a baptism of fire. Any investment at start-up would have spent a good 12 months in negative territory.

Taylor says surviving that period came down to guts, determination and a general belief that a downturn always ends and when it does there will be lots of opportunities.

Crashes and recessions tend to last a couple of years, but the good periods last a lot longer, he says.

"The surest thing that I can say is there will be another crisis, another stock market crash, so as long as you are aware that at some point when you are an investor everything is going to go south on you and there is nothing you can really do about it.

"If you always have that at the back of your mind then you are semi-prepared for those scenarios.

"It's the investor that thinks they can do no wrong ... that tends to panic."

Pie Funds has talked about wanting to offer a KiwiSaver product, but for now that is off the table despite existing clients being keen.

Taylor says not only does the KiwiSaver business model require significant scale, the firm's investment style would not suit the larger volumes of money that would have to be deployed.

"All our strategies are closed so if we open a KiwiSaver fund then we've got to put it somewhere.

"We are launching some funds at the moment, which are offshore-based, that will give us more capacity.

"Maybe that could do KiwiSaver, but specifically what we do here in Australia and New Zealand, we can't take any more money."

- NZ Herald

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