Abbey Cook is Fairlight Asset Management’s newest addition, along with US beauty retail stock Ulta Beauty.
Cook, a fund manager who joined the Sydney-based global equities firm in June last year after almost four years at rival Magellan, has long “admired” the New York-listed mid-cap stock, praising its strong financials including more than 30 per cent return on capital, short payback period and no debt.
Cook likes Ulta’s unique position as the only US player that can offer consumers all the beauty categories including cosmetics and skincare, as well as instore services such as hair and piercings, in what she says is a “traditionally fragmented” industry.
“The key thing is that it also has all the price points. You can purchase mass products like L’Oreal or you can purchase luxury like Chanel and Dior,” she tells The Australian Financial Review. “This is a highly differentiated offering – it’s the one-stop shop for beauty.”
Cook and Fairlight’s focus on deep fundamental research also means the money manager is confident the beauty category is “resilient” amid talks of a recession and the squeeze on consumer spending.
“It’s an accessible way for consumers to treat themselves and experience luxury. You could go spend less than $100 on a Chanel lipstick but if you’re feeling the pinch, you’re not going to buy a Chanel bag for around $10,000.”
Ulta, which declined 5.6 per cent in the past year, is the newest addition to Fairlight’s Global Small and Mid-Cap fund, which returned 33.5 per cent last year to December 31, beating the MSCI World Small & Mid-Cap Index’s return of 14.9 per cent. The “sweet spot” in terms of the market capitalisation of companies that the boutique money manager will invest in is between $15 billion and $35 billion.
Cook, who helps oversee Fairlight’s more than $1 billion fund, says the money manager is focused on picking good businesses at a reasonable price.
“We also had a great valuation opportunity [in Ulta] because the market was focused on consumer concerns with the US macro uncertainty, so it was a great opportunity to buy into an extremely high-quality stock.”
Hedge fund success
Cook’s 20 years of experience in managing listed equities also includes stints on Perpetual’s global equity fund and at WaveStone Capital, and co-founding VGI Partners with her brother-in-law, Rob Luciano. She jumped to the buy side from emerging companies research at JPMorgan in 2007.
In 2008, in her late 20s, she helped establish the renowned homegrown hedge fund VGI Partners (now part of Regal Funds Management since its merger in mid-2022) and build its investment process. There Cook says she homed in on taking a longer-term investment horizon.
“We took an extremely rigorous approach,” she says. “The exposure to really understanding the tenets of quality and long-term investing helped shape my philosophy.
“VGI has been enormously successful, it was incredible to be a part of that. I was very young at the beginning of my career so the training in analysis and process and diligence was invaluable.”
After just over one year at VGI, Cook joined WaveStone Capital in 2009 where she was responsible for recommending so-called “liquidity pool” (also known as network effect) types of stocks where the value of a company’s goods or services increases as more users buy the same goods or services.
These included online advertising company REA Group (which owns realestate.com.au), online job site Seek and Carsales, which had just started to emerge at a time of a rapid increase in internet use.
Cook worked closely alongside WaveStone’s co-founders, Catherine Allfrey and Graeme Burke, who she says have mentored her and guided her through a number of career decisions since leaving the firm in 2013.
She has favoured stocks that feature the so-called “network effect” throughout her career. “[I like] durable business models, subscription style, or any models with recurring revenue, and strong free cash flow generation.”
Having travelled a lot for work, Cook caught the travel bug early in her career and moved to the US to complete elective MBA courses in California.
It was also when ex-Perpetual stock pickers Matt Williams and Garry Laurence (now Airlie Funds Management’s head of Australian equities and Profeta Investments founder, respectively) approached Cook about working for the investment giant.
“I told them I was really keen to do global but that I also felt it was really important for me to spend some time overseas and to continue working in the US,” she says.
Ripe for stock pickers
Cook went on to work for Perpetual for almost five years while living in the US, until halfway through 2019 when the flagship global fund was gradually wound down, and she joined Magellan.
Cook says Williams is someone she “admires and respects”. She fondly remembers chatting about stocks in the staff kitchen of the shared office space between Magellan and Airlie at the MLC Centre in Martin Place in Sydney. “He does keep an eye on global stocks – he’s a fantastic person,” she adds.
While the fund manager acknowledges that macro headlines have dominated markets over the past two years as central banks embarked on the fastest pace of interest rate increases in a generation, she doesn’t try to predict the macro factors.
“We’re not trying to time the market, our focus is on really trying to find quality businesses that are resilient.”
What does excite Cook is the current market conditions, which she says are ripe for investing in smaller and medium-sized companies because of the cheaper valuations and the opportunity to find businesses that are below the radar.
“It’s really exciting from a valuation perspective … because the SMID part of the market is trading at one of the biggest discounts over the past two decades.”
She adds that an “intuitive and a sensible” investment strategy is to look at small and mid-cap stocks because when looking back at the data “over the last 20 years, there hasn’t been a time when both quality and SMIDs have underperformed”.
“It’s a great opportunity as an active manager because the analyst coverage and attention compared to large caps is around five times less.”
Starting out in banking is a fantastic training ground. It makes a lot of sense to start out there and gradually lean into the buy side.
— Abbey Cook, Fairlight Asset Management
Then there is US financial services firm Morningstar, which Fairlight has held since 2019. Cook says it is a stock largely ignored by the market and with no analyst coverage. That is even as the stock jumped 15 per cent in the past year and last changed hands at $US278.67 apiece.
“It brings in efficiencies in the market, and if you’re an active manager, it’s a great opportunity to capitalise on that.”
The Sydneysider, who lives in Mosman with her family, got her first taste of business from her parents who ran a strategy consulting firm. Conversations around the dinner table often turned to corporate strategy, and how a business works.
Cook discovered a natural inclination for business studies and economics in high school and found herself reading Harvard guru and strategy doyen Michael Porter when she was just a teenager.
While doing a double degree in commerce and liberal arts at the University of Sydney, she completed an internship at JPMorgan, then worked part-time for the US investment giant before joining in its small caps team.
“Starting out in banking is a fantastic training ground,” she says. “It makes a lot of sense to sort of start out there and gradually lean into the buy side from there.
“I always knew I wanted to have actual skin in the game.”
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