RMB Capital Management

Overview

With a highly focused and fundamental bottom-up approach, we search for small- and micro-cap Japanese companies that are trading below their intrinsic value.

Performance Objectives

  • Significant mid- to long-term capital appreciation
  • Outperform Japanese market over a market cycle
  • Minimize company-specific risks

Investment Approach

  • Focus on small- and micro-cap Japanese equities with attractive risk/reward profiles
  • Fundamental, bottom-up research process
  • Engagement with management teams
  • Concentrated portfolio of high-conviction ideas (20-30 positions)
  • Low turnover (typically two- to three-year holding period)

Why RMB Japan?

Within the Japanese market, small- and micro-cap companies are particularly attractive for bottom-up, fundamental investors. Specifically, these companies are:

Under-followed

  • Most small companies in Japan have no sell-side analyst coverage
  • Many firms do not have investor relations (IR) departments or efforts, creating an opportunity to uncover information not widely known through fundamental research

Under-advised

  • Management teams flush with cash need guidance on prudent capital allocation
  • Providing guidance on these issues engenders strong, long-standing relationships with management teams that provide unique insights

Under-valued

  • The lack of analyst coverage and guidance creates a number of situations where stock prices do not reflect the underlying value of the business
  • Finding companies where a sufficient margin of safety exists enhances the risk/reward profile of the portfolio

Philosophy

Our Japan strategy is distinguished by three key tenets.

Deep Value Approach

  • Downside protection is more important than upside potential
  • Creates best opportunity for attractive absolute and relative risk-adjusted returns
  • Flexible approach to valuation methodology widens opportunity set

Friendly Activism

  • Strong corporate governance programs heavily influence positive outcomes
  • Smaller Japanese companies are under-advised, creating opportunity to establish strong relationships
  • Interaction with management teams provides unique insight and informs our investment thesis

Concentrated Portfolio

  • Reflects our deep conviction in holdings
  • Assures our clients’ assets are focused in our best ideas
  • Enables us to conduct rigorous, fundamental research on every holding

Process

We have a disciplined and rigorous approach.

Idea Generation

  • Follow names regularly and monitor price discrepancies
  • Engage in industry conferences/events, management meetings, and quarterly trips to Japan
  • Screen based on fundamental and qualitative criteria

Fundamental Analysis

  • Interact with management teams and evaluate shareholder structure
  • Examine competitive positioning and industry dynamics (pricing power, stable free cash flow, barriers to entry)
  • Evaluate catalyst(s) for unlocking shareholder value

Valuation Criteria

  • At least 50% of market value in cash
  • Less than 1x book value
  • Discounted cash flow analysis

Reasons We Buy

  • A sustainable competitive advantage
  • Strong free cash flow
  • Little to no debt
  • A risk/reward ratio of 3:1 or higher

Reasons We Sell

  • Price appreciation changes the valuation ranking (potential upside is reflected in the stock price)
  • Deteriorating company fundamentals and/or a change in the business outlook develops
  • A better use of capital presents itself

Commentary