Lennox’s flagship fund, the Lennox Australian Small Companies Fund was launched in May 2017. It is an actively managed, style-agnostic portfolio that invests in a broad range of smaller companies. The fund’s objective is to identify companies with compelling medium term valuations that we believe will not disappoint the market.

Their investment approach is based on fundamental analysis and in-depth research. Lennox focus on identifying businesses that have strong management teams, sustainable earnings profiles and favourable growth prospects due to competitive advantages and/or industry dynamics.

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 Lennox 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.