The Aussie analyst punting his peers

Chris Prunty was at home on a Sunday when an email told him he was to be named him one of the 14 best 'buy side' analysts in the world.

SumZero, the 'Facebook' for 8000 buy side analysts to contribute their best investment ideas, named just one Australian among its 14 best analysts in the world.

Prunty is the analyst for his good mate fund manager Tony Waters’ Ausbil Dexia’s $100 million MicroCap fund. The fund has achieved an annual return of 39 per cent since February 2010. Prunty and Waters’ top 10 holdings include BC Iron, MaxiTrans Industries, MACA and Vision Eye Institute.

“Very few people are fishing in our pond,” says the 31-year old Prunty, who once considered following his father into the Australian Army.

SumZero – which is backed by the Winklevoss twins, famed for their litigation with Facebook’s Mark Zuckerberg over control of that social network – rates its buy side analysts on performance and peer review, says Prunty.

“Ninety-nine per cent of the SumZero analysts are large cap US hedge fund guys,” he says.

Prunty’s life has always been a little different from his peers in finance.

With a lieutenant-colonel father and a mother who received the Order of Australia for her work with orphans in Indochina, Prunty had a peripatetic life after being born on the Mornington Peninsula and living in army bases in Victoria, Queensland and Germany. He says he “had the misfortune of growing up in Canberra”.

A useful left hand opening batsman, Prunty won a cricket scholarship that paid some of his Australian National University fees. During his first year through a joint politics/history and finance/accounting degrees program, Prunty recalls reading The Warren Buffett Way and the lesson it imparted

“If you want to make money you’ve got to pick stocks that go up,” he says.

Before ANU, Prunty, impressed by his “disciplined” and “conscientious” parents, briefly thought about an army career. But during the Australian Defense Forces Academy open day for prospective students, he found cadets started their day at '0530' – not appealing to the then 17-year old.   

Ironically, at ANU Prunty got a job working in Woolworths' fruit and vegetables department and found himself getting up at 5.30am to meet the trucks that brought  supplies.

Before his final year at ANU Prunty was interviewing with banks and fund managers.

One of four picked out of thousands to work in AMP’s investment team in 2003, Prunty was assigned to the marketing department. He left after a year as marketing “wasn’t my preference”, he says.

He moved to CCZ Equities, a firm started by ex ANZ stockbrokers in the 1990s which concentrates on small cap stocks.

“It was a fortuitous move,” says Prunty. “There were fantastic people there who trained me.”

He fell under the tutelage of Tony Waters who taught him how to do financial modeling, talk to companies and think about markets. 'Focus on the numbers' was Waters’ mantra.

“When talking to companies all conversations should come back to the economics of the business,” says Prunty. “Most analysts get it wrong because they are focused on the narrative. Everything they know is focused on the past. Everything you need to know is in the future numbers.”

To get the future numbers Prunty then and now talks to the company’s competitors, suppliers, customers and management. He seeks to find companies that have, in his words, the best chance for “annuity of earnings less affected by economic cycles”.

After two years at CCZ, Prunty jumped ship to work under Campbell Boag, a small cap fund manager who started his own firm, the now defunct Confluence.

“Campbell is a frustrated philosopher,” says Prunty. “He’s a deep thinker who thinks about company management, competitive strategy and market positioning. He taught me that you could infer a lot by what wasn’t said by management.”

Confluence shut down a year after Prunty joined as Boag decided to retire. Prunty moved to Investors Mutual where he met up once again with Waters.

On February 15, 2010 they started their fund at Ausbil.

A father with two small boys, Prunty typically is in the office before 8am reading the papers and broker notes from CCZ and Baillieu. He meets one or two companies a day during his work-week. At home at 9pm or 10pm he will sit at his computer and make sure he has missed none of the ASX announcements he cares about.

“The best companies are the ones you never have to meet,” he says. Since the fund’s start Waters and Prunty have owned Credit Corp and Maca.

The two men are the best of friends. “We can say pretty well anything to each other and we do,” he says with a wry smile.

“We’re probably wrong a third of the time but, as George Soros said, the trick is to make a lot more money when you are right,” says Prunty.

Three years ago when Waters and Prunty wanted to start their fund there was seemingly little interest from investors. Prunty credits Ausbil’s marketing team for getting the fund off the ground but it is likely to manage no more than $250 million of stocks outside the ASX 200.

In January Waters and Prunty bought interest rate sensitive stocks such as Specialty Fashion, Cash Converters and Village Roadshow. They sold small resource shares, specifically gold producers.

“One of the purposes of capitalism is to provide money to small companies in the hope they can become bigger ones,” says Prunty. “That’s one of the functions of our portfolio.”