ValueWalk’s Interview With David Miller Of Catalyst Capital Advisors

ValueWalk’s Raul Panganiban interviews David Miller the Co-Founder, CIO and Senior Portfolio Manager of Catalyst Capital Advisors.

Q1 hedge fund letters, conference, scoops etc

Transcript

Good morning, podcast listeners, today is a very special episode, I am here live with David Miller, Co-Founder, CIO and Senior Portfolio Manager of Catalyst Capital Advisors.  Before this, he founded a newsletter in 2005 where he identified undervalued stocks with a near term catalyst.  He is a graduate of the University of Pennsylvania with a BS in economics and received his MBA from University of Michigan.  In today’s episode, we discuss his IPOx fund.  I want to welcome David to the show and I want to welcome all our listeners to a very special episode.

Welcome to ValueTalks with Raul.

So I just wanted to welcome our listeners to a very special episode, I have David Miller, the Senior Portfolio Manager at Catalyst Funds, and David welcome to the show.

Thanks for having me.

Yeah, if you can just tell me about your background and what led you to finance and investing?

Yeah.  So I’ve been passionate about finance and investing ever since I was a little kid, my mum gave me a book on the stock market when I was eight years old and been fascinated by it ever since, and it was always my dream to launch my own investment company.  And back in 2006 I partnered up with Jerry Szilagyi, CEO of Catalyst to launch Catalyst Funds there together.

Nice.  What book was it your mum let you read?

It was a book about how to read the stock pages, so it was kind of a one-on-one type of primer about learning how to invest and what everything meant, but this was 1988, so it was how to do it from a newspaper.

Very nice.  And how would you describe your overall investment philosophy and approach?

My investment philosophy really focuses on trying to find something different, some interesting angle that other people are not looking at where you can identify sources of alpha.  So one source of alpha might actually be combining two different forms of beta that are inversely correlated with one another to get a better risk adjusted return, and others are just trying to find great long only investment strategies where you can find something that has a tendency to pop like this Catalyst IPO Fund we’re going over today.  There’s certainly a tendency, it’s very well documented for IPOs to pop when they first come out.  And that’s a great example of the concept that I really love.

Yeah, so does your approach adapt to whatever the fund product is?

Exactly.  So every individual strategy has its own source of alpha that it’s trying to nick away at and like to try to identify as many different great sources of alpha as you can because, you know, the more alpha you can get from the more different types of sources that aren’t really correlated, the better your risk adjusted returns.

Yeah, sure.  And do you have like an overall approach to the markets, like how value investors consider themselves value investors?

Sure.  So I think everything [inaudible] comes down to value investing, even if it’s growth investing, growth is a form of value, if a company has an amazing moat they can grow their business at a rapid rate, that certainly has value.  And yeah, certainly the book value of a company has value from the same perspective there’s certain things that you’d want to short over the long term like natural gas that has high carrying costs, that makes sense to be short over the long term.  What I really like to do is try to find all the different sources of return or risk premia and trying to find the best way to combine all of them together to get the best overall portfolio.  And that’s really my philosophy is to try to be a little bit of a renaissance investor, see where you can find different sources of alpha from different areas and put them together to create a great end product.

Very nice.  Yeah, and then you’re the Portfolio Manager of Catalyst’s IPOx Allocation Fund, what was the inspiration behind the fund and what are the objectives?

So the inspiration behind this fund is I met a fellow named Josef Schuster who is the CEO of a firm called IPOX Schuster, he created this index that’s called the IPOx 100 Index.  And the philosophy underlying that index, that’s enabled that index to put up returns since it started in 2004 that are more than double that of the S&P 500, is that if you think about amazing companies, companies that have been 100 x, 1,000 x types of returns.  Firms like Amazon, Home Depot, Microsoft, firms like that, Apple, all of them have one thing in common, every single one of them had to come public through an IPO process.  And virtually all of those were oversubscribed IPO offerings when they first became public because people recognized that those are amazing companies.  Now, certainly not every IPO is going to turn out to be a 100-bagger or a 1,000-bagger like those companies I mentioned.  But if you were to create an index of all of those oversubscribed IPO offerings, there is no way you could possibly miss the next amazing company that comes out.  And if you ever have a company that puts up a 100 x or a 1,000 x type return, you can have a few duds in there and still dramatically outperform the S&P 500.  So that’s really our philosophy with that fund is we want to see how we can get access to the absolute most amazing grand slam home run companies at the earliest stages.