(Bloomberg) -- Jonathan Tanne first heard about Amarin Corp.’s fish-oil pill in 2016. He met its chief executive officer, spoke to cardiologists and parsed academic papers before deciding in 2017 the company was onto something. He gradually built up a position in the stock. Then in 2018, it popped 239 percent as a study showed the drug helped reduce the risk of heart attack and stroke.
Similar big bets on shares of undervalued and unpopular companies have helped Tangible Investment Management return 256 percent since its founding in 2012 with a buy-and-hold strategy. He doesn’t use borrowed money to juice returns and doesn’t bet on stocks declining.
With billionaire Natie Kirsh as his only client initially, the nearly unknown $150 million fund last year started drawing outside investors, including wealthy individuals and a U.S. endowment. Tanne does all the stock-picking, with support from a recently hired operations executive and wealth manager Credo Group, in which Kirsh also has a stake.
Tanne, an accountant by training who’s managing a portfolio of listed equities for the first time, isn’t one to opine on economics or monetary policy. He likes to find obscure, out-of-favor stocks from global markets and conduct his own research, guided by a 70-point checklist that covers everything from director compensation to his emotional state while assessing the investment.
“We’ve done well in finding stuff that’s a little bit esoteric, a little bit off-the-radar,” the 37-year-old said from his office in London. “Generally markets are efficient, but if I’m looking at areas where not a lot of people are looking, they’re less efficient.”
Sweet Spot
Tangible Investments typically holds shares in about 25 companies of all sizes, with the sweet spot in the range of $500 million to $2 billion in market value. As idiosyncratic as Tanne’s process is, it also reflects the longstanding principle that smaller companies outperform in the long run, since they tend to have greater growth potential but are overlooked more easily.
Concentrated bets are also a way of outshining benchmarks when market returns are so skewed by a few companies -- though it’s also a riskier strategy.
Tanne says he doesn’t have anything specifically against popular companies such as the so-called FAANG stocks -- Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc. -- but simply finds better opportunities elsewhere.
Tangible’s return since inception equates to about 21 percent a year, compared with about 11 percent annually for the MSCI World Index. And he’s done it without those big technology stocks, which have been among the market’s best performers. Netflix, for example, has returned 72 percent annually since mid 2012, while Amazon has returned 37 percent a year. Even in a turbulent 2018, when the MSCI index lost 8.2 percent including dividends, Tangible returned 8 percent and in 2019, it’s up almost 15 percent, just slightly above MSCI World’s 14 percent gain.
Other than Amarin, Tanne’s favorites include TCS Group Holding Plc, a Russian bank owner listed in London, Chinese fuel producer Henan Jinma Energy Co. and Norwegian stock-exchange operator Oslo Bors VPS Holding ASA.
Property Investments
In Tanne’s own telling, his interest in evaluating companies started when he was a teenager in Australia assisting his mother, a private business broker. He first encountered his fellow South African Kirsh -- the owner of U.S. restaurant supplier Jetro -- while helping him analyze investments in Australian property trusts. He moved to London to work with Kirsh on his stake in U.K. real-estate company Minerva Plc. Armed with his personal trading history, he asked Kirsh to let him manage public equities with his money.
“I pushed. I don’t think anything in life gets offered on a plate,” he said. “I have no hobbies. This is my hobby.”
The ardor is palpable.
Since 2012, Tanne has penned a report every quarter with detailed theses on his favorite names -- even when his only reader was Kirsh. They have included photos of his field trip tour guides and himself with management, and in one instance, an email exchange with an investor relations director over irregularities he spotted in financial statements.
While they aren’t strict criteria, his 70-point checklist helps him make sure he hasn’t missed anything, he said. The list includes questions on financial statements, management incentives and macroeconomic factors, corruption risks and auditor brand.
As for Amarin, which helped his fund post positive returns last year, he’s still keeping it as one of his top three holdings, betting that there’s still more upside as it seeks to expand the uses for its drug.
“Amarin actually is more known now which bothers me a little because I like to be off the radar,” he said. “It’s not that I go and look for things that are not well known. I just think that generally I’m trying to be the smartest man in the room which means I’m in the room with nobody in it.”
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