Interview #74 : Steven McCarthy (DMX AM)

Finding undervalued micro-caps on the ASX

For this issue we have the pleasure of interviewing Steven McCarthy from DMX Asset Management, a Sydney-based boutique asset manager.

DMX invest in high quality, undervalued, small and micro-cap companies listed on the Australian Stock Exchange.

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Read the last two interviews with Adam Wilk (Greystone Capital Management) and Roland Könen (Value-Holdings International AG)

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Hi Steven, thanks so much for taking the time to do this interview. 

Can you please tell readers a little more about your background, and how you got involved in investing?

Thanks Jon, and thanks very much for this opportunity to discuss our investment approach with Capital Employed.

Prior to co-founding DMX Asset Management in 2014, I had worked in corporate finance and accounting, working with small to midsized corporates advising in relation to transactions, valuations and restructuring.

For many years, from my university days, I had also been investing privately in small ASX listed companies (typically with market capitalisations between AUD5m and AUD50m) and was drawn to the very attractive opportunities in this space.

I was keen to be involved in a business that could provide others with the opportunity to co-invest in these unique and interesting small companies.

So, after 15 years working in professional services, I moved from corporate finance to co-found DMXAM nine years ago. 

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Can you provide an overview of DMX Asset Management? And who is the typical client who invests in the funds?

A key aim when we founded DMXAM was to give investors exposure to a part of the ASX that is typically hard to access and is often misunderstood.

The nano-cap (which we consider to be less than AUD20m) and micro-cap (less than AUD100m) space requires a lot of patience, a lot of hard work and the turning over of many rocks.

It is institutionally under-researched and under-owned. Many investors put it in the too hard basket or treat it as a very speculative, risky part of the market. Yet, from our perspective, it provides some wonderful investment opportunities.

There are certainly many un-investable companies in this space that are to be avoided, but, if you do the work, there is also a lot of profitable, cash generative, companies with unique products and services, and often market leading positions, that represent very compelling under-the-radar, unloved investments. 

We are trying to provide our clients with a diversified exposure to these compelling undiscovered opportunities that are otherwise hard to access.

Based on our network that we have developed over the years, we are also often presented with capital raising / underwriting opportunities that are unavailable to most investors, that our clients can get exposure to through investing with us.  

We currently manage around AUD40m across two funds. We are focused and true to label, with the majority of our holdings having market capitalisations of less than AUD100m and our portfolios having a median market capitalisation of less than AUD50m.

Our typical clients are high net worth investors, family offices and sophisticated investors that can appreciate the opportunity and would like a professionally managed exposure to a differentiated portfolio of these small, genuinely undiscovered companies.