Global Alpha Asset Management : Mastering the Art of Small-Cap Selection

The Global Alpha Asset Management team alone has a combined experience of over 60 years in the small-cap sector. It is by focusing exclusively on its expertise and deepening it meticulously that the Quebec-based firm has enjoyed great success, particularly in the North American institutional market.

David Savignac, CFA
Portfolio Manager

From the moment they joined forces to create Global Alpha in 2008, Natcan’s two former colleagues, Robert Beauregard, Chief Investment Officer, and David Savignac, Chief Operating Officer, had a game plan that remains essentially the same to this day: keep their focus on small-cap companies. In other words, its managers are entirely dedicated to what they do best, which is building global and international small-cap equity portfolios. They also called upon Qing Ji, an analyst of the Montreal financial community that they knew well, to join their project as a portfolio manager since they were convinced that her profile was perfectly in line with their vision.

In addition to building on their shared knowledge of small-cap investing, these managers also realized that the same passion was fuelling their career ambitions. “We all had entrepreneurial spirits. I come from a family of entrepreneurs. I’ve been involved, in real estate and the business world in general, including renovation centres. Today, we are eleven employees at Global Alpha and each of us has industry experience. Our background allows us to better connect and dialogue with the leaders of the companies we meet,” explains David Savignac.

Successful Findings

Global Alpha presents itself as an investment firm that conducts independent fundamental research to identify attractive investment opportunities in companies whose growth is unrecognized by the marketplace. “Research and analysis on smaller companies are often limited or not widely communicated, leading to the mispricing of such companies’ securities,” the group says on its website.

Specifically, this market inefficiency creates an opportunity for managers interested in small-caps to uncover companies with unrecognized potential growth for their clients’ portfolios.

To do so, the Global Alpha team conducts diligent and comprehensive research across a broad investment universe that includes all companies with market capitalizations between US$100 million and US$5 billion. The managers take the time to travel to each region and visit companies that present investment opportunities that they believe are attractive.

“That’s what motivates me to do what I do – to look for promising new companies. Meeting entrepreneurs is extremely interesting. Plus, it’s never boring work because you have to constantly learn about companies and stay on top of the latest trends in different sectors. It’s very rewarding!”, shares Mr. Savignac, who has travelled throughout Europe and Asia on numerous occasions in search of rare gems that would contribute to the investment strategies offered by Global Alpha.

A Thematic Approach

Moreover, Global Alpha examines the valuation of a security according to an investment thematic and not simply based on a bottom-up approach. For example, its managers consider a solid company that benefits from positive long-term trends, such as environmental preservation, to be an excellent investment.

David Savignac gives the example of Tomra, a company that Global Alpha held for a long time in its portfolios before selling it because it had become too large to be considered a small-cap. Tomra is an international company of Norwegian origin specialising in machines equipped with sensors to collect and sort waste in order to reduce waste.

“Tomra owns 75% of the reverse vending machines market. These machines, among other things, allow people to recycle aluminum cans, glass and plastic bottles, while receiving change in exchange for their deposits. With 82,000 machines installed around the world, Tomra has collected more than 35 million empty bottles,” he reports.

In addition to having a positive impact on the planet, the company has experienced significant growth during the years that Global Alpha has held its stock. In fiscal year 2017, Tomra reported sales of US$900 million and an EBIDTA of US$177 million. As of December 2019, the company’s annual growth was 10.5% over the previous three years.

Propelled by Its Structure

Global Alpha’s strategy as an emerging investment firm has also been to establish a structure that allows its managers to focus exclusively on building the best global and international small-cap portfolios for their clients.

Global Alpha is, therefore, part of the Connor, Clark & Lunn Financial Group, which supports the firm in non-investment management tasks such as sales, marketing, compliance, and information technology. “We knew from the start that we were going to target the institutional market and that’s why we created this structure which is very appealing to large American clients,” says Savignac.

Global Alpha, which initially won a first institutional mandate of approximately C$7 million, now manages close to C$5 billion and 65% of its assets come from its U.S. clients. It is the programs for emerging U.S. managers that have allowed the firm to take off because it is through one of them that the investment firm was able to acquire its first significant U.S. institutional mandate in 2013. “The performance of our strategies already spoke for itself, but getting such a mandate for a US state showed our seriousness to other potential clients of the same type,” says the portfolio manager of Global Alpha.

The firm strongly believes in the importance of such programs to support emerging managers and is also committed to similar Quebec initiatives such as the Emerging Managers’ Board (EMB) and the Quebec Emerging Manager Program (QEMP).

“There certainly is a strong interest for local investment in Quebec. Many investors are increasingly aware of the importance of encouraging local emerging managers. For example, they understand that in a city like Montreal, entrusting their assets to local firms generates economic benefits throughout the ecosystem since these firms, themselves, hire numerous professionals in their area (translators, lawyers, notaries, etc.).

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