Three Questions for Frank Macindoe

18 Mar 2021

Frank Macindoe has been an adviser in private wealth management since 2002. Prior to joining Koda Capital as a partner and adviser in 2018, he worked at JBWere for 16 years. His early career began as a commercial lawyer in Melbourne, London and Sydney.

Frank has considerable personal involvement with the not-for-profit sector and is a portfolio manager and responsible manager for the Third Link Growth Fund. The Fund has been investing with Frank since the very first day of its inception.

We asked Frank about his investment style and why he supports us.

You have been investing in equities since 1976 and have quoted Oscar Wilde in saying that ‘experience is simply the name we give our mistakes’. What has experience taught you in how you make investment decisions?

Frank: As there is so much noise in the short run, I have found concentrating my efforts on finding investments that can be held for the long-term (five years or more) has worked best. Every five to 10 years there is a big cyclical move or regime change and you have to be prepared to adapt to those.

So, on the one hand, you form a five to 10-year view and not let yourself to be put off course. But you also balance that with the fact that you might be wrong or there may be a regime change. You have to try to be open-minded, to do your thinking and constantly re-examine your investment thesis.

The game of bridge is a good analogy. You have your bidding system and if it doesn’t work out one night, that’s ok. But if it doesn’t work three or four nights in a row, then maybe you might need to revise your strategy.

If you have had a bad quarter with an investment strategy or even a bad one or two years with the same strategy, you might not change. But if it’s still not working after three years, you have to start thinking maybe it’s wrong.

As far as possible you have to disentangle your ego from the process. Too often not enough emphasis is given to managing a portfolio as opposed to a random collection of stocks. Third Link’s portfolio has 20-25 stocks and the aim is to choose companies with different theses and drivers, and the winners more than compensate for the odd inevitable loser. You have to accept you will never get 100% right, that’s for sure.

Third Link invests around a quarter of our Fund’s balance with you, as the diversified portfolio of Australian equities you manage continues to significantly outperform the index. What does it take to maintain such impressive results over the long term?

Frank: Not letting short term worries and fluctuations dominate your long-term view; I don’t put anything in there that I don’t expect will produce better than market long-term returns. For example, there is a number of infrastructure and health stocks in the portfolio – in the short run their prices can be heavily influenced by things like interest rates but which are irrelevant to the long term growth outlook; one’s toll roads and another’s an airport. Healthcare is supported by an aging demographic, and generally, when people get wealthier, they spend more on healthcare. I have a number of these kinds of themes, expressed in different ways.

One of the key things for me with the Fund is that it’s not influenced by the composition of the index – I’m just trying to make money for Third Link. Having a patient investor like Third Link as the client makes this easier.  If your average fund manager performs badly for a quarter or two, well, the asset manager will get rid of them. I had a clear understanding with Chris Cuffe from day one that my job was to make money for the Fund, not to match the index.

Third Link exists because of the generosity of fund managers like you. Why did you decide to support Third Link?

Frank: I think the Fund was a great idea to leverage the skills of those who take part and it has raised a lot of money; $13 million-plus and counting.

Third Link is a win/win/win; it provides a secure income stream for not-for-profits, it leverages skills and experience and has produced a good return for the investors.

Third Link can say to a charity, we’re going to support you for two, three years, knowing they have a reliable source of funds to make those donations. With COVID especially, that is invaluable to charities, it makes their enterprise so much easier to manage and helps them to focus on their mission, rather than having to put all their energy into fundraising. That remains as true today and it did when we started in 2008, perhaps even truer.




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