With stock markets hovering around long-term highs, and bonds near long-term lows, many investors are anticipating lower returns from traditional investments in the years to come. As a result, investors are increasingly looking for differentiated sources of return to help reduce the overall volatility of their portfolios. In response to these market trends, Acuitas Investments has leveraged its focus on U.S. micro-cap and non-U.S. small cap managers and launched a multi-manager long/short equity strategy focused on those same markets.
Exploiting Global Opportunities
“Underfollowed areas of the equity markets such as microcap offer opportunities for skilled investors to generate an information advantage and deliver strong returns,” said Acuitas Managing Partner Chris Tessin, in a statement regarding the firm’s new product. “This is the basis for Acuitas’s exclusive focus on microcap and small cap markets globally. Implementing in a long/short strategy enhances managers’ ability to exploit these return opportunities through their ability to short.”
Acuitas’s research indicates that micro- and small-cap stocks remain an “undiscovered” asset class. These small stocks trade in the “least efficient” areas of the equities market, and with this inefficiency comes the potential for alpha-generation.
“In the inefficient areas we target it is critical to identify great managers early in their life cycle when assets are low and their ability to generate returns is the greatest,” said Acuitas Director of Research Dennis Jensen. “Offering a return-focused long/short product with limited net market exposure is a natural extension of the work we do for our existing strategies, as we have been researching long/short managers as part of our investment process since our founding in 2011.”
While the firm is still relatively young, having been established in 2011, the firm’s two founders, Mr. Jensen and Chris Tessin, both CFAs, worked as portfolio managers overseeing billions of dollars of assets as part of the multi-manager portfolios at Russell Investments.
Manager Selection Key to Success
The firm’s US Microcap Fund (AFMCX) and International Small Cap Fund (AISCX) both launched in July of 2014. For the full year of 2015, AFMCX generated returns of +2.45%, ranking in the top 1% of all funds in Morningstar’s Small Blend category. Meanwhile, AISCX generated slightly higher gains of 2.84% in 2015, ranking in the top 46% of its category of Foreign Small/Mid Value funds for the month.
Both of Acuitas’s mutual funds have a multi-manager approach, which is also key to the firm’s long/short equity strategy. To identify potential managers for its funds, the Acuitas combines fundamental research and quantitative analysis, while taking into account the unique qualities of capacity-constrained asset classes. In addition, Acuitas considers the manager’s investment process, philosophy, management team, and risk controls.
“Our goal is to identify strong, alpha-focused managers before they turn up on other institutional investors’ radar screens,” said Mr. Jensen. “We’ve done this with our long-only products, and we utilize this same approach in the long/short space.”
The new long/short strategy is not available in a mutual fund format, but Acuitas has indicated that it is available for plan sponsors, endowments, wealth managers, and other institutional investors. In addition, the firm plans to offer the strategy in a commingled vehicle as well as in separate accounts for larger investors.