Cadence Capital – A glimpse at Investment Philosophy and Performance

Cadence Capital Limited (ASX: CDM) is among the top listed fund management companies, established by Karl Siegling in 2003 and listed on ASX in December 2006. The company is managed by the board of highly qualified and experienced industry veterans. Karl Siegling is leading the company as the chairman. With over 20 years of financial services experience, he has worked for Deutsche Bank, Wilson Asset Management etc.

The Philosophy behind the consistent performance

Cadence Capital invests in diversified portfolio of securities via its fund Cadence Capital Fund. The fund manager has a unique investment philosophy that has led them to garner a decent 12.9% per annum (gross performance) over the past 13.3 years, which is above market return on a risk-adjusted basis.

Some of the features of the fund are as follows;

  • The fund is claimed to be managed in a way that the founder Karl Siegling himself would want to manage his fund. In fact, the Cadence team itself is the largest investor in the fund.
  • This equity fund is managed on both the long and the short sides across all sectors and geographies, proving huge scope of opportunities.
  • This is clearly not an index-hugging fund wherein the investors are likely to get average market returns.
  • Leverage, on which the fund operates, is within the manageable capability of the management.

The core philosophy of the fund uses both the fundamental analysis and technical analysis and combines the best practices of both the worlds to outperform the market and face every market cycle.

For the fundamental analysis, the company uses the market wizard William J. O’Neil’s time tested CANSLIM method to determine the value. But the process does not end here; now technical analysis kicks in to determine the entry and exit levels.

The management is so disciplined on the technical side that even if they find cheap stock (respect to their current valuation), the management won’t touch the stock if the technical price trend is negative. Similarly, it does not go short or exits the existing long position until the trend starts to fade.

The company also has a unique position sizing strategy, i.e. while entering a position, it is done in a maximum of 5 tranches but while exiting its more on an aggressive side with making a complete exit within 3 tranches. This unique approach and timing mechanism help the company to beat the market hands down.

Another fund that has recently been launched by the company as a separate entity is Cadence Opportunities Fund. Launched in January 2019, the fund is suitable for those investors who are seeking exposure to a more actively managed fund. It will be having higher levels of churn, short term positions, high volatility in account equity curve. However, the company will seek to pay regular fully franked dividends with an aim to grow them steadily.

Earlier in 22nd February 2019, the company released its half-year results ended 31st December 2019. The company has reported a total loss of $79.38 million in 2HCY18 compared to the total profit of $55.8 million in 2HCY17, while the fund underperformed all Ordinaries Accumulation Index by 12.6%. However, the company didn’t fall back on paying the dividends. The company had announced 3.0 cents per share fully-franked interim dividend which will be payable of 13th May 2019.

However, the management’s commentary and outlook going forward has been insightful and has shown confidence to the investors. Karl Siegling stated the markets have recovered since the year-end and they have started to deploy idle cash (towards more liquid positions), which was increased during the fourth quarter of 2018. He also stated concerns about current China-US trade dispute, Brexit negotiations etc.

Technical outlook

As of 7th March 2019, the stock closed 1.1% up at A$0.905 compared to the previous day’s closing of A$0.895. Today, 8 March, the stock is trading flat at A$ 0.905 (as at 1:50 PM).

The stock has fallen straight from A$1.3 odd levels to CMP of A$0.905 which has made the stock go in the oversold zone. From last few weeks, the stock is unable to make a new low and combining these two factors; they paint a positive picture for the stock from here on. There is a resistance around A$0.915 above which we may see a good one-sided up move. 


Disclaimer

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