Interview with Portfolio Manager Bob Auer of the Auer Growth Fund

Ian Cassel Blog, Interviews 3 Comments

Bob Auer is Senior Portfolio Manager of the Auer Growth Fund (AUERX).  The Auer Growth Fund is 65% in micro-smallcap equities and according to Morningstar ranks in the top 1% for performance over the last 12 months. The interesting thing is the fund isn’t a microcap-centered fund, but a fund that utilizes a strict quantitative approach to finding “cheap growth”. It makes sense that a majority of the stocks that get through their screens are smaller underfollowed companies.  The Auer Growth strategy was first put into action in 1986 with a $100,000 personal account that went on to grow to $32 million by 2007 (with no additional funds added during that time).  Bob Auer believes the best place to invest is in microcaps. (Click the Play Arrow below, or you can download the full interview)

 

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Comments 3

  1. Great interview! Very thought provoking. Incredible return on their personal account, as well–I had to calculate the IRR on that, and it looks like it was around 33%, which is an amazing feat to pull off over 20 years (as well as a reminder of the power of compounding).

    It sounds like he’s quite diversified, which makes sense given the more rule-based methodology he uses. I wonder if they tried to cherry-pick the best 10 (or 20 or 30) ideas and ran a more concentrated portfolio, whether that would work out even better or not… But perhaps being concentrated doesn’t work as well with growth stocks as it may with value stocks, since the downside on any individual position may be greater and that can impair overall performance.

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      Author

      Raj: I stumbled upon the fund two years ago when the fund was ranked in the bottom 2% of all funds by performance, and now its in the top 1% which is funny when you think about it. I really am intrigued by the strategy as well, and Bob Auer is such a great guy too. I had breakfast with Bob about a year ago when I was visiting Noble Romans in Indianapolis.

  2. I appreciate this interview and it’s very interesting; also it’s good to hear about the process. I can’t argue with the results they have had in their original accounts, but the performance has not been very good as a public fund as was touched upon:

    I can’t help but wonder if it could be better (much?), though. What if:

    – Hold stocks that double in some way. 800 stocks that have doubled in 25 yrs or 32 stocks a year on average. Some of these stocks have undoubtedly become huge winners beyond 100%. That’s a lot to potentially leave on the table. How about if once a stock hits a 100% gain, the holding is sold down back to its original weight and then the rest is held until the stock drops 50% from a peak along with a strategy of bringing the weight back to its original after every double. Or, hold until the p/e doubles on an absolute basis, or the stock underperforms the market over some period of time by, say, 20%?

    – Valuation. An absolute p/e seems too limiting especially when a 12 p/e in one industry isn’t really comparable to a 12 p/e in another industry. What about buying only if, say, the p/e is in the bottom half or quarter of its last 5 yr history or some type of rule like that. Or, buy when the p/e is in the lower half or quarter of the industry? My worry would be that I may be missing some stocks that have certain characteristics that allow it to trade higher, on average, in terms of multiples.

    – Volatility could potentially be managed better. This is really a must if running a fund. I am not sure how it could be done in this instance but one way would be to try to optimize the portfolio to a 1 beta by adjusting the weights within certain constraints. Also, the holdings could possibly be paired in some way so that one is an “overweight” and one an “underweight” based on some type of expected return. Then the portfolio could be optimized to lower volatility possibly without hurting performance.

    Once again, not criticism and well done on the growth from 100k.

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