Pohl position: fund manager bets on Seek in race against short sellers


By: Lucy Battersby
November 8, 2020
Link to the original article

Veteran fund manager Dr. Manny Pohl AM is sticking with one of his best bets in the market, Seek, calling the short seller attack against the online jobs classifieds operator a cheap shot.

Pohl was an early backer of Seek, with the company’s shares sitting in his portfolio since they listed at $2.10 in 2005. It’s a punt that has paid off in spades, with Seek’s shares trading over $22 and the company delivering a steady flow of dividends.

However, Seek has come under fire this month from Texas-based activist fund Blue Orca, with the short seller alleging that Seek’s Chinese subsidiary Zhaopin was laden with fake job ads.

According to Pohl, the attack highlights the core problem with short-sellers. “[Seek] have been talking about that for years. Now somebody has taken what is a fact in the business and blown it into a whole big story and shorted it to make some money out of it. And that is the fundamental issue that I have with shorting.”

“I detest that part of short selling,” Pohl says. Short sellers make a profit by trading on the expectation of a falling share price.

The South African emigrant is well known as the manager of Hyperion Asset Management from 1996 to 2012, when it was part of the Wilson Asset Management family. Pohl left Hyperion in 2012 and purchased Pinnacle Private Equity, renaming it EC Pohl & Co. However, he now admits that those two years in private equity were “a furphy” to fulfill a non-compete clause on talking about ASX-listed companies.

EC Pohl & Co has since become ECP, which manages about $2.5 billion of institutional money. ECP also manages Global Masters Fund and Flagship Investments, which spun out of Wilson’s in 2012. It has a bottom-up long-term stock picker approach that held Commonwealth Bank, Rio Tinto, Domino’s Pizza, Macquarie Group and Afterpay as its top five stocks in June.

Last year, ECP’s listed investment company (LIC) Barrack Street was renamed ECP and launched a new unit trust sold through Copia to chase more retail investment money. ECP only holds 30 ASX-listed companies at any time but constantly reassesses each company’s weighting depending on expected returns.

“We are bottom-up, methodical,” Pohl says. “We forecast to our level of certainty how much money we’ll make and then we put our money into it.”

The fund was in 20 percent cash in February thanks to high valuations, then bought more shares when prices tumbled due to the coronavirus pandemic.

Generally, the fund only sells if there is a major change within the company. For example, Pohl has no intention of selling out of dairy company A2 Milk despite the company getting caught up in the growing trade dispute between Australia and China. Shares have dropped 30 percent since July and were last at $13.71. “The fact that sales (to China) are declining because the Daigou channel is no longer functioning the way that it should, for us, is not necessarily a sell … it just affects our weighting.

“Things that force us to sell a stock are, for example, a big change to the management team. Because we base all that we are doing on the management managing the business and we are expecting a certain outcome,” he says.

Large acquisitions are also an automatic sell for Pohl, who cites Reliance Worldwide’s expansion into the UK as an example.

Meanwhile, he is optimistic Australian businesses will pull through the pandemic, especially given the generous JobKeeper program and a surprising response from the banks. “The difference this time in COVID is that the banks for once – I never thought I would see the day – are actually being accommodating and have been helping people.

“Is that a result of the royal commission or government pressure? But the banks this time around are the ones looking to help you as opposed to pulling the plug out and historically they always pulled.”

The combination of JobKeeper, unemployment, and the economic destruction caused by COVID-19 lockdowns has created an unusual situation in 2020 – ultra-low interest rates and cashed-up Australians stuck at home with nothing to do. This has led to a huge increase in people playing the stock market hoping to make some quick money.

Pohl believes two seemingly contradictory things about this situation; that day traders risk losing all their money, and that equities are risk-free. A recent front-page article blaming ultra-low interest rates for pushing investors into “riskier assets” sent his blood boiling.

“The assumption is people looking for yield are going to be forced to start to invest in shares,” Pohl says. “And the assumption is that that is more risky. And it’s just not. If you do your homework properly if you do what we do – analyse the companies and build it from the bottom up – they are absolutely no risk.”

On the other hand, he also has a cautionary tale of a friend who lost everything through day trading.
Pohl paraphrases a Warren Buffett quote: “the stock market is a place where there is the continual transfer of wealth from the amateurs to the professionals”. (The quote is actually “from the impatient to the patient”).

“From day to day, the prices go up and down, that happens to everybody. In the GFC the portfolio went down 15 percent as soon as it hit. In the October crash in 1987 the markets were down 15-20 percent over two days. Yes, the price goes down. But if you have done your homework and the business is sustainable and they have got a strong balance sheet … they survive these things.”

Lucy Battersby
Lucy Battersby has covered trends, technology, and telecommunications since joining The Age in 2008.