Australia’s second-highest performing hedge fund, Tribeca Alpha Plus Fund, has capitalised on the increased volatility during earnings seasons, claiming that inadequate investment bank research has struggled to keep pace with rapidly changing industries, according to a report by Bloomberg.
The report cites Jun Bei Liu, a portfolio manager at the Sydney-based fund, as saying that the fund’s nearly 19% return over the past year is down to the diminishing coverage of equity research by banks and brokerages. She noted that the rise in automated trading has further widened the gap between market pricing and the fund’s own analysis.
“The forecast discrepancies in the market have become enormous,” Liu said, explaining that the trend has been exacerbated by the “juniorisation” of research, where fewer analyst updates contribute to greater divergence in market expectations.
A report from JPMorgan Chase & Co on 1 March highlighted that February’s earnings season was the most volatile for individual stocks in Australia in 15 years.
Managing approximately AUD1.35bn ($910m) with a long-short strategy focused on Australian stocks, the Alpha Plus fund has seen significant gains in several of its top holdings. For example, Goodman Group has surged 32% year-to-date as of Tuesday, while Life360 has skyrocketed 144%. A2 Milk Co, a smaller position, has climbed 35% over the same period.
Liu pointed out that up to 70% of the fund’s outperformance relative to its benchmark occurs during Australia’s semi-annual earnings seasons. She noted that the scarcity of high-growth companies in Australia leads investors to heavily invest in firms that demonstrate profitability.
Brambles, the fund’s largest holding, saw its stock jump nearly 12% following its earnings report on Wednesday. Liu remarked that such a significant gap between expectations and results is unprecedented for one of Australia’s largest companies.
Pro Medicus, a medical imaging firm, was among the fund’s top five holdings, driven by its strong and sustainable growth. The company’s shares rose 7.2% after reporting earnings on 14 August. Although Liu has recently taken some profits, she is still open to buying on future dips.
Liu also highlighted the fund’s investment in Life360, a family tracking app, based on its potential for customer conversion. The company’s stock jumped 18% after its August 9 results.
The fund consistently compares its research with that of sell-side analysts leading up to earnings seasons to gauge where returns might be. Currently, about 60%-70% of the fund’s positions are long bets, with the remainder in short positions.
