An agnostic's approach to generating alpha

Ally Selby

Livewire Markets

Emanuel Datt has followed what some may argue is an unconventional path to investment management.

Prior to launching his fund in August 2019, Datt managed a Family Office, having previously worked in a range of private family businesses, in commercial real estate, tourism and medicine.

But, it would appear his broad career experience is paying off.

The Datt Capital Absolute Return Fund has delivered investors returns of more than 17% per annum since inception, with Datt steadfast his blend of conservative and high-risk assets can continue to deliver investors returns over the long run.

So what actually is Absolute Return? Aren't all fund managers meant to generate profits for investors? Glad you asked.

These funds invest in a wide variety of asset classes to deliver returns in both rising and falling markets. Such assets include bonds, derivatives, equities, real estate, futures, precious metals and currencies, to name a few. While the multi-asset approach is obviously independent of a particular benchmark, these funds typically target CPI + 4-5%.

That said, is Absolute Return really all - sorry, in advance - datt? Find out by reading the interview below.


Fund at a glance: Datt Capital Absolute Return Fund
Fund Manager: Emanuel Datt

  • Asset class: Long only, Australian assets
  • Objective: To achieve absolute double-digit returns over 2-year periods, irrespective of market conditions.
  • Minimum investment: $100,000
  • Investment outlook: 5 years +
  • Suitable for: Wholesale investors
  • Launch date: August 2019
  • Performance since inception: 18% p.a.
  • Management fee: 1.025%
  • Performance fee: 20.5% above hurdle rate

Take us through how you built your fund from scratch to set it up for long-term success?

We began our Fund in August 2019 after realising there was a clear gap in the fund management landscape.

We found it very difficult to find performance-focused, highly aligned investment managers who had the skills and flexibility to invest in a manner that grew capital sustainably.

We initially built up our portfolio based on our primary research database that pre-dates the Fund’s inception. We place a huge emphasis on performing our own original research, rather than relying on broker and external research notes.

To date, we have researched over 1000 separate companies, investment opportunities and sectors – providing us with a rich dataset and source of ideas to use when finding and evaluating new opportunities for the Fund.

We are unashamed growth-centric investors who attempt to temper the risk aligned with growth investing by blending in more conservative assets within our portfolio. Great returns often come with great volatility. 

At the portfolio level, we recognised from our prior investing that the inclusion of unlisted fixed income assets could provide important downside protection whilst achieving double-digit yields at relatively low risk. It’s very important for an investors portfolio to be aligned with their own risk profile and temperament, and this includes professional investors. 

Blending conservative assets with higher-risk and return growth assets we felt would lead to higher portfolio returns achieved at lower relative risk. Accordingly, our investment mandate is broad and can include: equities, fixed income and derivatives for hedging purposes.

What has really worked for us is investing in best-in-class, customer-centric competitor brands that are winning market share off stagnant incumbents and/or those who are capturing a first-mover advantage in their respective industries. Whilst stock prices may move around considerably in the short-term, over the medium-term these businesses can experience enormous improvements in their business outcomes independent of stock price. 

The embedded value and optionality in these successful businesses is significant and we aim to select positions where we can compound our capital for many years. By focusing our attention solely on positions that have the potential to provide asymmetric returns, we maximise our probability of success over the longer term.

Our aim over the long term is to be like a cockroach – hard to kill. In the 33 months so far (since inception), we have achieved a compound annual return of over 18% per annum; capturing around 100% of the market’s upside whilst only 54% of the market downside. All this has been achieved with a low correlation to broader equity markets and at substantially less risk than a conventional pure equity portfolio.

What are the strategies and techniques that set you apart from other fund managers?

Our model is to invest in companies with great assets, run by entrepreneurial management teams and work proactively with them to help realise the business’ full potential.

We have found the only consistent way to identify companies with these specific and attractive attributes is to do our own research in a focused, mono-tasked manner. This provides us with a huge edge over traditional firms where analysts are expected to multi-task research over many companies; resulting in a strong reliance on external research providers.

A seductive narrative can lead to a broken heart (and empty pockets), as such we actively attempt to mitigate our bias by not speaking to management teams until after we have made our investment decision. We find that a business’ financial numbers and trajectory tell a greater story than any management team could, and sustained growth usually indicates sound management practices.

We have developed a strong reputation for our use of alternative data, such as web traffic data, social media etc. which provides us with a valuable investment edge when selecting investment opportunities. For instance, we invested very early in what is now a recognisable global brand in Afterpay (ASX:APT); as well as rapidly rising Australian brands like Dusk (ASX:DSK) and SelfWealth (ASX:SWF) – by noticing enormous increases in web traffic and social media engagement. This is information that even retail investors can track and collate very easily.

Given our strong emphasis on working with management teams, our investment horizon is longer than a typical fund.

We will only invest in businesses where we anticipate strong growth in the company and within the industry itself and are happy to hold the position over a minimum 5-year timeframe.

This ethos builds trust and transparency with our investee companies as well as providing us with a degree of strategic influence. This is very much at odds with the standard industry practice of being very impersonal and non-committal towards investment holdings.

Where are you seeing opportunities right now?

We are living in incredibly exciting times where advances in technology are leading to material changes even in fairly moribund sectors. Two positions we are very excited about in our portfolio are Dusk Group (ASX:DSK) and SelfWealth (ASX:SWF).

Dusk is a recently listed, Australian homewares retailer best known for its scented candles. The company was floated on the ASX at an extremely low relative valuation when compared to other listed retail comparables. This can be partially explained by the fact that it was a sell-down by private equity portfolio nearing the end of its lifetime and was already a profitable business.

A fact missed entirely by the market, was the robustness and discipline of its business model as well as its potential to expand globally.

The company has upgraded its financial guidance twice in the 6 months it’s been listed which is an incredible achievement given at the time of listing, its revenues achieved per store were double those of former stablemate and current ASX darling Lovisa (ASX:LOV). Much credit can be given to the aligned management team very ably led by Peter King. We expect that the company will take its initial step overseas to the New Zealand market, then followed by the globally significant UK & US markets. Interestingly, Dusk receive a reasonable amount of web traffic from the UK & US already, despite no advertising spend. We expect the company to start online-only sales in these jurisdictions within a reasonable timeframe.

SelfWealth provides Australia’s cheapest fixed price online stockbroking for retail investors and has captured an enormous portion of the Australian market over the past 12 months, growing its client base 5 times to almost 100,000 clients as at the time of writing.

There is a huge opportunity to further develop this platform to sell a range of additional products to its large and engaged captive audience.

A new CEO has been appointed in Cath Whitaker who comes out of global insurance behemoth Marsh McLennan, and we anticipate the company will continue to grow into the market leader in its current segment as well as becoming a clear mainstream brand.

We believe that both these local brands have the potential to evolve into $1 billion businesses over a 3-5 year timeframe.

Want to learn more about other newly launched funds

The Datt Capital Absolute Return Fund is just one of the funds (and their portfolio managers) that we will be profiling over the coming weeks as part of our Fresh Fundies series. Other managers include:

If you know of a newly launched fund that you think should be covered in this series - or if you are a portfolio manager who has recently launched a fund yourself - send us an email at content@livewiremarkets.com.

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Ally Selby
Content Editor
Livewire Markets

Ally Selby is a content editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian Group, Your...

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