Philip Mathews has over 18 years' experience
as a fund manager, research analyst and
stock broker both in London and Sydney.
Philip has a proven track record of over
12 years as chief investment director of
two private unlisted funds, which have ranked
in the top 1% of hedge fund performance
globally. Both funds have multiplied their
unit values in excess of 60 times over this
The Sabre Fund is an absolute return fund
investing in mainly Australian and international
listed securities. The portfolio consists
of largely listed securities, however, other
possible investments may include derivatives,
commodities, fixed interest, short selling,
leverage and foreign exchange.
The Sabre Fund was established in April
of 2002 and currently has net assets approaching
Your fund was up over 154% through
December YTD. How have you achieved
these returns in a year where low volatilities
have kept hedge fund returns relatively
The Sabre Fund adopts a non-benchmark
or strict strategy single strategy approach
to investment. The manager instead chooses
the approach, which is expected to yield
the highest potential returns in the
upcoming period, and avoids the problem
of over-crowded styles, which have become
populist and consequently less profitable.
We also believe in a more focused portfolio
holding a smaller number of our best
investment opportunities, which we believe,
actually ultimately lowers the portfolio
risk as we become more intimately acquainted
with all our investments. A more volatile
fund than the average is however created
but this is more than compensated for
by superior long-term returns.
In 2004, a number of our strategies
tended to work at the same time, which
created the solid returns experienced.
The returns however are not substantially
different to what we have experienced
at times in the past.
- To what factors i.e. strategy,
market developments can you attribute
the performance in 2004 being three times
as high as in 2003?
2003 was a year born from the turmoil
of September 11, 2002 and all the uncertainties
that resulted. Looking back, that turmoil
probably created some of the opportunities
in at least a decade. 2004 was a year
that we saw equity pricing better reflect
valuation than for the previous period.
You conduct thorough inspection
of companies in addition to a top-down
analysis. On a micro level, what do
you look for in your company meetings/visits
and how do you achieve superior bottom-up
We are looking for companies that reflect
trends that our research has revealed
to offer potential sustained rewards
for investors. In particular we are
vigilant for changes in these trends
as they may occur.
When we visit a company, we are looking
for confirmation that the company does
reflect any trend our research has revealed.
Often we find a rising tide lifts all
boats and that laggard performers may
have the most upside. We are very vigilant
as to whether the company is able to
deliver on its business plan and as
to the credibility of the people entrusted
with decision making. It is absolutely
essential that the company delivers
the expected results.
- Regarding financial statements,
how do you weight various ratios (i.e.
profitability, liquidity, turnover) and
valuation measures (free cash flow, book
Free cash availability is the most
important financial measurement and
we are totally focused on the price
we are paying for it. With regards to
financial statements - we will not invest
in any country or company where we cannot
be certain the numbers are correctly
represented. China worries us in this
respect and we won't invest there for
that reason. If we find that we have
made a mistake in this regard and for
some reason management or the financials
lose credibility, we would look to liquidate
our investment. Mistake correction is
vital to our process.
- What criteria do you employ to
screen industries or read the macro environment?
As described above, we look for trend
both on a micro and macro level. The
macro level is determined by demographic,
the micro by shorter-term factors such
as corporate and private spending patterns.
To spot trends, we subscribe to various
industry trade journals, global newspapers
and every available news service.
On the Australian market: what
are the reasons and potential impact
of the historically high cash positions
of Australian domestic institutional
The high cash position of institutions
is a major factor underpinning the market.
When combined with the higher-than-global
dividend yields (which are generally
tax free for Australian corporates)
and decade-low interest rates, valuations
are strongly underpinned. Cash levels
are high due to significant cash inflows
derived from the countries superannuation
system where up to 9% of an employees
wage is diverted to superannuation.
Historically high corporate buybacks
have contributed to cash levels.
- What impact will the relocation
of Newscorp likely have on the domestic
Financials will assume a higher weighting
rising up to 35% of the market total.
This probably means that the market
may become more interest rate sensitive
in the future.
- Do you think that the Australian
market is pricing in too much of the strong
earnings news given some recent negative
economic data, such as the account deficit,
retails sales and housing financing?
The market has had an amazing run
and will find sustaining momentum from
here increasingly difficult. That said,
support is gained from high fund cash
levels, dividend levels and low interest
rates. With the building sector softening
in 2005, a significant 2004 driver will
not be present in 2005.
- Over the long term, will Australia's
record current account deficit pose a
threat to economic stability?
Australia has always run a high deficit.
However this does not appear to pose
a threat as Australia is a young growth
country with an expanding population.
- Your fund maintains a flexible approach
to investment vehicles and strategies.
How do you see your asset allocation and
distribution of strategies shifting as
the fund matures?
We may increase the number of larger
investment opportunities which we participate
in or increase our sectorial investment
approach more than in the past. Sectorial
investments appear to perform as well
generally as individual stocks can do.
The key once again is to understand
Tell us a bit about the Tomahawk
Fund ready for release in early January
The Tomahawk Fund will emulate the
successful strategy we have used over
the last 12 years but is aimed at international
investors who are disadvantaged by investing
in a fund such as Sabre due to its Australian
resident status. We expect the Tomahawk
portfolio to resemble that of Sabre
over time and invest in a range of international
investment opportunities that match
our strict requirements.
- What are your future travel plans
to meet with prospective investors?
We are looking to conduct a road show
in March for prospective investors in
Europe and Asia. In addition we have
been approached to speak at a number
of conferences in coming months.
Mathews Capital Partners Pty Limited
+61 2 9255 7295