Getting to know Tim Binsted, Portfolio Manager at NovaPort Capital
Tim is a Portfolio Manager at NovaPort Capital with responsibility for both the small and microcap strategies. Before joining the NovaPort team, Tim worked at Adam Smith Asset Management for three years as an analyst covering Australian small and microcap equities. Prior to this, Tim was a financial journalist with The Australian Financial Review reporting on a wide range of business, markets, and company affairs.
What inspired you to pursue a career in equities?
I’ve always had a very wide range of interests and there are a lot of things I could have been happy doing. Ultimately it was my family background that led me to the share market. My older brother Aaron is a fund manager, and my father Paul was a banker with a real passion for investing. From my teenage years I was involved in countless talks about stocks and markets around the dining table or at a local cafe. I was particularly interested in the changing fortunes of different industries, the business drivers, and why, in the eyes of the market, some companies were “good” and others “poor”.
What do you bring to the NovaPort Capital team?
I have a slightly different background to most people working in Australian equity markets, having studied arts and worked as a journalist. History and reporting foster a few skills that I think are valuable in the markets. For example, ancient history requires you to piece together a conclusion based on incomplete, fragmented, and sometimes contradictory, evidence. That evidence must be weighed and condensed into a narrative. The narrative must be changed and updated if new information comes to light. Working in a newsroom you are compelled to respect deadlines (tomorrow’s paper doesn’t wait), find angles on newsworthy events, and focus on the key bits of information. Being able to discard information and focus on things that matter is pretty useful to a stock picker. From a personal point of view, I am naturally curious and enjoy learning, and I can be quite dispassionate, which is useful when admitting you got a stock wrong or in deciding whether a position should be added to or reduced.
Where do you see the best opportunities for investors, given the current market conditions?
Over the last 18 months or so small cap stocks have significantly underperformed the broader market both here and in the US. Low trading volumes suggest that conviction is low, and that money has been reallocated up the market cap curve to bigger, more liquid, names. This has created an opportunity with some quality small cap industrial businesses trading at attractive valuations. The valuation dispersion between the most expensive cohort of industrial stocks and the rest of the market always remains quite wide.
What do you think is the most underappreciated benefit of small and micro-cap companies and what is the most underappreciated risk of financial markets.
I think it is reasonably well-known that small and microcap companies are under-researched relative to larger stocks, but it is definitely underappreciated. The investment banks will always pay more attention to bigger companies given the imperatives of corporate relationships and potential brokerage. At the same time, there is less capital that can be put to work in smaller, less liquid, equities which means a lot of money out there chasing investment returns must look somewhere else. Markets are competitive (and no doubt small cap investing is competitive too) but it is easier to find hidden gems when fewer people are looking. At the risk of being a little controversial, I think the fixation on benchmarks are an underappreciated risk. Fund managers do need to be measured and to be accountable, but risk is clearly not well defined as your return relative to a market-cap weighted pool of stocks. The stimulus-fuelled COVID rally drove huge gains in loss-making tech companies, bitcoin, venture capital, and buy now pay later companies. Most people who bought into those rallies have lost a lot of money, yet benchmarks indiscriminately bought more of those things as they increased in price. Risk is not having a different outcome to a benchmark (although we are absolutely committed to beating it!). Risk is permanent loss of capital.
‘What are you currently reading/watching/listening to?
I listen to a lot of podcasts and I’m more of a reader than a TV person. I’m currently listening to The History of Rome (which delivers what the title suggests) and I like Bloomberg’s Odd Lots show (markets related) and Andrew Huberman’s Huberman Lab which covers a mix of exercise, health and science-related topics. On the book side I’ve just finished Iron Kingdom which is a history of Prussia and I’m currently mid-way through William Shirer’s Rise and Fall of the Third Reich.