NorthGate Asset Management

Equity markets systematically misprice businesses that are structurally sound but institutionally inconvenient — too small for large allocators, too unglamorous for growth-chasing mandates, too quiet to attract attention.

Where the gap between perceived and intrinsic worth is wide enough, we let time do the work. Returns, when they come, come from growing earnings power rather than from a rising multiple. That is a slower mechanism, and a more durable one.

The dislocation is structural rather than cyclical. A decade of sell-side rationalisation gutted research coverage of smaller listed companies, and the rise of passive allocation amplified the effect: businesses outside the major indices are underowned largely regardless of their quality.

This is not a mispricing waiting on a single catalyst. It is a standing feature of how research attention and capital are now allocated — which is why we treat it as a place to look, not a trade to time.

Most of the work is reading. We study a small number of businesses closely enough to form an independent estimate of what they are worth, and we act only when the price on offer is meaningfully below it.

Concentration follows from that discipline. A position exists because we understand the business and the price is wrong — not to fill out a sector, and not to make a list look balanced. The corollary is that most of our decisions are to do nothing.

We invest in publicly listed equities, beginning with US-listed companies. The portfolio is concentrated — a small number of businesses, each large enough in the book to matter. We expect to widen the search to other markets in time.

We buy with a multi-year horizon in mind, but we are not committed to one. A position exists because the price sits below our estimate of what the business is worth; if the market closes that gap sooner than we expected, the reason to keep holding has gone with it. Some positions will be held for years. Others considerably less.

We use exchange-listed options as part of how we build and hold equity positions.

The two we use most are cash-secured puts and covered calls. We sell puts on companies we have already researched and want to own, at strikes below our estimate of fair value — if the option expires we keep the premium, and if it is exercised we acquire a business we wanted at a price we had already judged attractive. We sell calls against positions we hold, at strikes where we would be content to sell, which earns income on an asset we own either way.

Other structures are used from time to time where they serve the same ends. Options are a tool in service of the equity book rather than a separate strategy.

We hold the approach to a testable standard rather than to unfalsifiable optimism. It depends on neglected businesses re-rating within a reasonable window of a normalised earnings cycle. If that re-rating persistently lags — as it did through the longest momentum-driven markets — then a long horizon becomes a liability rather than an advantage.

So we track it. We measure the realised gap between our estimates of intrinsic worth and the prices we actually exit at. A persistent, widening divergence across several closed positions is a signal to reassess the approach, not to insist on it.