Yeah great to see the professional gold investors piling into Greatland - I think this shows the stock went into sticky hands at the placing rather than hedge funds and flippers. Assuming that is when these funds bought in. If they bought on market, post placing, then even better...
An Auz pal of mine just flagged this ... if Regal start buying, then apparently, YOU know we are destined for the ASSX 300/200
" Watch this same set up play out for GGP in Australia. Say Shaun raises $100m circa 9 mths time. Regal will get set with $50m in a placement. Stock goes into ASX200 and ramps to 25p plus "
Picking the next ASX company destined for the index is as much art as science – and one Regal, Australiaʼs most-talked about fund manager, appears to have mastered as it chases record outperformance.
With an uncanny track record of picking the next index inductees, Phil Kingʼs small cap fund achieved a gross return 43.3% in the 12 months to July with Regal itself expecting to rake in more than $55 million in annual performance fees.
“What Regal has done better than anyone else in the market is identify potential ASX 300 candidates, irrespective of the business or sector, and cornerstone their capital raises which allows them to get set in size,” one Australian fund manager, who spoke on the condition of anonymity, told Capital Brief. “More oPen than not, Regal is oPen the Qrst or second largest shareholder in companies going into the index. Theyʼve gotten there by following the market and getting placements, ingratiating themselves with the brokers and with the companies along the way.”
The rationale for Qnding future inductees early is clear. Market research suggests that ASX companies tend to rally in the lead up to index inclusion but underperform once theyʼre added, creating an opportunity for savvy traders to get in early and cheaply into potential inductees and then sell into a wave of money.
Analysis by Capital Brief suggests Regalʼs buying and selling oPen follows a similar pattern, building a decent position up to 12 months before the stock is inducted into an index and then taking proQt as passive money moves in.
The ASX 200 and 300 indices Qlter the largest companies by free Soat and adequate liquidity in a bid to create an index which is both tradable and representative of the market. Regal declined to answer questions on its strategy or positions from Capital Brief.
But a source familiar with the fund manager's investment strategies conQrmed Regal's market analysis is produced by two in-house quantitative analysts – or 'quants' – who, among other duties, siP through the market and generate a short list of companies ranked by their probability of being added.
These are then subject to scrutiny and a range of other Qlters. But while by no means its entire investment strategy, a series of successful index picks has helped underwrite the performance of Regal's small cap fund. Its recent track record speaks for itself.
Red5, the $2.4 billion Australian gold miner looks like a prime example of the strategy at work. Added to the ASX 200 index in March 2024, disclosures show Regal began building a substantial stake in the company four months earlier in December, amassing a 5.4% stake by the time the company was moved into the index with a position worth a little over $80 million. A month later, aPer the share price spiked, Regal began selling its Qrst parcels, accelerating sales in June with the share price 22% higher than when it Qrst joined the index and higher still from when Regal began accumulating.
In fact, Regal had large positions in every March inductee which also included Siteminder, Audinate, Stanmore Resources.
Similarly, of the three companies added to the smaller Tech Index in June – Bravura Solutions, Gentrack Group and Qoria Limited – Regal had large positions in two. The fund built a 16.66% position in Qoria throughout 2023 as the soPware companyʼs share price hovered around 22 cents. It then doubled to 44 cents on joining the index. Regal likewise built up an 8% position in utilities tech platform Gentrack which it then began trimming almost immediately, dropping its stake below 5% last week.
But the frequent trading – and a lack of transparency – makes it di^cult to ascertain exactly where Regal is placing its bets at any one time, with companies only requiring to disclose substantial shareholders who control 5% or more of stock. “Thereʼs not a lot of transparency or disclosures around the positions in Regalʼs portfolio,” the fund manager said. “They donʼt give a sense of what they own unlike other fund managers and I think thatʼs deliberate because I suspect the big waves theyʼre trading are around index positions.”
Blow ups
While the strategy has borne fruit, nor is it without inherent risks. Notably there have been at least two Regal-backed companies that soared towards the index only to later su`er a meltdown. The Qrst is Cettire, which Regal bought into at IPO and in which it has built up a 15% position.
In February the luxury ecommerce platform was rocketing towards a $2 billion valuation before its share price crashed 70% as serious questions were raised over its business model. Ranking as one of the most shorted stocks on the ASX today, Cettire now looks unlikely to move into the index unless it can show concrete signs of a luxury market rebound and grow its margins once more. The second is DroneShield which nearly doubled its market cap in the space of a month on strong retail investor interest. With a net proQt of just $9 million to its name in 2023, the stretched valuation quickly snapped back aPer Capital Brief reported short sellers were taking an interest.
No institutional shareholders have been formally named. But market sources say Regal took a signiQcant minority of the companyʼs $100 million cap raise in April and participated in its subsequent July raise.
“At one point DroneShield looked like it was going to jump straight into the ASX 300 and 200 in one go. If that had happened, you would have seen a lot of passive buying and support, despite the absurd valuation,” another fund manager told Capital Brief, adding it was still “highly probable” that the company would land in the ASX 300.
Morgan Stanley analysts agree, forecasting earlier this month that DroneShield would be added to both the ASX 300 and the Small Ordinaries index as part of the September rebalance.
And while Regal may have to wait a little longer for DroneShield to be added to the 200, it is still Qrmly in the money on the earlier 70 cent raise. Nor is DroneShield itself down and out, having found an 'in' with NATO and US government agencies, part of its speculative $1 billion plus sales pipeline.
While its returns to date are impressive, Regalʼs small cap strategy had been tracking a 12-month 82% return as recently as April before sharply declining through the middle of the year, hurt in all likelihood by both Cettire and DroneShield.
The sharp corrections for both stocks show the volatility and risk associated with trading momentum.