Small by design, what they lack in size they make up for in stability. Otus combines in-depth bottom up fundamental research with a top down analysis of the environment in which their companies operate. This long/short fund has achieved its goal of both capital preservation and superior long term returns over its 10 year history.
Roberto Casoni is a Portfolio Manager and a Partner of Otus Capital Management. He joined OCM in May 2007 and came with over 15 years of investment experience, most recently with Citigroup, where from 2003 until 2006 he was a Managing Director and Head of the European Small/Mid Cap research team. Roberto was consistently voted one of the best analysts in Italy in both Extel and Institutional Investor Surveys. Roberto obtained a Dottore Commercialista (Fiscal advisor & accountant) and a degree in Business & Economics.
1. How much AUM does Otus Capital Management manage?
Otus Capital Management is predominantly a long/short equity hedge fund manager with around Eur420m under management. We also manage about Eur145m in the long only space and this is mostly invested in micro-caps (market capitalization below Eur250m).
2. How does your investment approach compare to the other mutual funds?
The approach is mainly “bottom up”, hence the portfolio is mainly populated by “stock specific” ideas. The “macro layer” is built around it and is supported by the large amount of meetings with companies and the vast experience of OCM’s 4 portfolio managers (in aggregate more than 50 years of experience in the small/mid cap area).
3. What assets do you have in European Equities? (% and bn)
The hedge funds are dedicated to European small/mid cap equities (which is normally defined by stocks with a market capitalization of between Eur200m and Eur3bn). Therefore, it is 100% invested in Europe.
4. Which are the most favorite European Countries for your Investments?
The hedge funds are 60% invested in Euro denominated countries (Germany, France, Italy and Iberia) and 40% in Scandi and Switzerland. For historical reasons, UK stocks are not normally included in our portfolios.
5. Which investment style: value, growth, GARP, and so on, fit better to Otus? Which is your investment approach?
Given the particular dynamics characterizing small/mid cap stocks, we do not have a specific/pre-set investment approach for any single company. The investment attitude is primarily bottom up and the investment decision is taken after having met with the company’s management team.
6. Which screens do you use? How do you know if a company fits with your investment style?
Given the lack of liquidity that characterizes the segment in which we invest, we don’t normally trade a stock. Usually we form our investment idea by valuing the prospective growth drivers, management cost discipline and business model ability to generate cash.
7. Which are the key factors that Otus target (management, corporate culture, governance, markets, profitability, ESG, say on pay and so on)?
Like I said, usually we form our investment idea by valuing the prospective growth drivers, management cost discipline and business model ability to generate cash.
8. Do you have a target price when you buy a stock, such as 10 or 20% upside, for example?
Yes, we normally have an indication of the theoretical valuation of the company. We also apply a discount which is stemming from poor liquidity of the stock or mere prudent approach. Generally speaking, our initial expectations are for a target valuation/price that is higher than 10-20%.
9. What is your average market cap? And what about your cut-off?
We generally invest in companies with a market capitalization between 250m and 3/4bn. In some circumstances we also invest in larger names but we rarely exceed 10bn market cap. Our average market cap is between 1bn and 2bn.
10. Typically, what size position do you take in your portfolios?
Our average position is around 1% of the fund. Our biggest positions are generally around 3% but occasionally can be as much as 5%.
11. Does a Company have to be profitable, when your Fund invests in this Company?
Having a relatively long investment horizon – 20 months – we analyze special situations whereby the companies (for various reasons) might temporarily operate at loss. This is quite typical of industrial companies at the bottom of the cycle or facing a change of management followed by heavy restructuring.
12. Do you use to meet management before buying a stock?
Yes, possibly more than once.
13. Where do you prefer/like to meet management?
We do travel a lot and prefer to meet the management at their headquarters, where we have a better sense of the company’s organization and they are more relaxed. Second best option is in our office.
14. Are your Funds long-term investors, what is your average holding period?
Yes, Otus is a long/short equity hedge fund with about Eur145m in the long only space – approximately 25% of our total AUM of Eur565M. The average holding period is around 20 months.
15. Are you an active investor? And does your investment policy consider to have a seat in the BoD of the Companies?
We are not active investors and we typically don’t fight the management at the general meetings. On the contrary, we tend to avoid investing in a stock when we don’t like the management or the strategy that is being implemented.
16. Are there any sectors or themes you would not invest in?
We don’t preclude ourselves from investing in any sector. Small and Mid caps are normally not represented in some particular sectors such as tobacco, oil, etc..…
17. Typically how many European companies do you meet in a year?
We meet around 650-800 companies every year and this give us a sense of how different sectors/geographies are navigating the current macro context and global trends. Since inception in 2004, the average number of stocks in the funds has been between 60 and 90.
18. Why should a Company target funds such as Otus?
I think we can offer high level of experience in a specific asset class (Small and Mid caps). Our meetings often end up with an open and frank discussion with the management on the dynamic of the market, with positives and negatives of the investment case. We never fight the management: when we buy a stock we normally offer our support in making sure he can deliver the strategy. Last but not least, normally we hold positions for longer than most hedge funds – 2/3 years.