Interview with Himanshu Shah from Shah Capital on Hedge Funds Topics
In the dynamic world of investment, Shah Capital, a sector-agnostic, fundamental investment firm, is betting big on small-mid-cap and non-US equities. According to the firm's President and CIO, Himanshu Shah, these sectors offer tremendous opportunities with underwhelming valuations.
Shah Capital anticipates that many small-mid-cap and non-US companies will deliver better profit growth in 2025, presenting a potential for strong returns. This optimistic outlook is grounded in the belief that these sectors have stronger balance sheets compared to large cap equities.
However, a concentrated portfolio can create an illiquid situation, especially with smaller capitalization equities. To manage this risk, Shah Capital prefers a discretionary, bottom-up strategy for generating significant alpha. This strategy focuses on individual companies and leverages historical insights for investment decisions.
The firm's approach to activism aligns with other shareholders in seeking to maximize the value of the company. Shah Capital uses the term 'soft activism' or 'Suggestivism', engaging in open, consistent dialogue with management before going public with activism, if necessary.
Shah Capital follows companies for a long period before investing, ensuring a thorough understanding of their qualitative aspects for long-term success. The firm believes that having long-term, unlevered capital is optimal for managing liquidity risk in a concentrated portfolio.
In the small-mid-cap US equity space, Shah Capital finds better opportunities by focusing on companies with strong growth prospects that are often overlooked by larger institutional investors. For non-US equities, the firm discovers better opportunities in emerging or less-followed developed markets where valuations are favorable and growth potential is robust.
Interestingly, Himanshu Shah sees a trend of reversal in the long-term significant outperformance of US large cap equities. He predicts that passive investing will underperform over the next three to five years due to "Most Elevated Valuations". Lower interest rates and a softer global economy are expected to lead to more profit growth disappointments in large cap equities.
In conclusion, Shah Capital's strategy is built on a deep understanding of individual companies, a long-term perspective, and a focus on sectors with underwhelming valuations and robust growth potential. The firm's approach to activism, coupled with its bottom-up strategy, positions it well to capitalize on the opportunities in the small-mid-cap US equity space and non-US equities.
Shah Capital's investment strategy primarily revolves around business sectors with underwhelming valuations and robust growth potential, focusing on small-mid-cap and non-US equities for potential profit growth in 2025. The firm believes that this strategy, which includes a discretionary, bottom-up approach and a long-term perspective, will generate significant alpha and capitalize on opportunities in both the small-mid-cap US equity space and non-US equities.
