Eley Griffiths is an Australian equity small cap specialist manager and has been managing small cap equities since 2003. They manage two main strategies: a small-cap strategy (generally stocks with a market cap of $1 billion to $5 billion) and a “microcap” strategy (generally stocks with a market cap of $100m to $1 billion). We are investing in the Eley Griffiths Emerging Companies Fund (microcap).

Eley Griffiths Group is a style agnostic equities manager combining fundamental bottom-up research of companies with an in-depth qualitative assessment of their management and industry structure. They adopt a combination of quantitative and qualitative assessment. The quantitative part of their process focuses on price-toearnings-growth (commonly known as the PEG ratio) of individual stocks. While the qualitative process aims to assess the quality of company management and industry structure in which the company operates.

As an outcome of this process the portfolio tends to exhibit both growth and value characteristics or ‘growth at a reasonable price’. The strategy has historically been able to demonstrate an ability to add value above the index but investors should be aware that over short-periods there can be large swings either way relative to the index. As a consequence investors should be willing to hold through these periods in order to participate in any potential future outperformance.

Micro-caps can be subject to flows in and out of that part of the market which can drive periods of outperformance and underperformance. Ultimately however, over time the outcome of the portfolio will be dependent on the underlying success of the businesses in which Eley Griffiths invests. Therefore, we expect the portfolio to do well in periods where other market participants favour micro-cap growth stocks or where the underlying stocks hit their growth milestones or beat earnings expectations.

The portfolio is unlikely to perform well when other market participants exit the micro-cap part of the market in favour of large cap stocks, where there is a ‘flight to safety’ and investors sell high growth, high PE stocks or when the underlying companies don’t realise their anticipated potential.