Morningstar Magazine - August/September 2017 - 80

Ten Questions

Frank Villante of Celeste Funds
Management on concentration
and conviction.
Laura Lallos, Morningstar magazine's managing
editor, interviewed Villante in July.
1. How has the Australian small-cap market evolved

since you started investing there?

The emergence of China as the pre-eminent
economy globally is the most significant event that
I have observed since I started investing. The
economic rise of China has had a profound impact
on how both small and large companies operate,
be it related to place of manufacture, supply chain
change, or end sales destination.

communication skills. They also need to have
empathy and an ability to relate to and understand
people. The best analysts are often people who
have an eclectic mindset and who can engage
with people across all strata of society.
6. Will Celeste Funds Management expand to offer

a more diverse lineup?

Celeste likes being focused on the small-company
sector. We are attracted to the embedded
inefficiencies that exist in the small-cap space.
One added benefit is that the small-cap sector is
varied, stimulating, and rarely lacks opportunity.

2. Have you adapted your investment process

Frank Villante is the portfolio manager of
Celeste Australian Smaller Companies, which
has earned a Morningstar Analyst Rating
of Bronze. He joined boutique asset manager
Celeste Funds Management in 2004 as
chief investment officer. With more than 30
years in the industry, including running
large- and small-cap portfolios at Bankers
Trust, Villante is one of the most experienced
investors in the Australian small-cap market.

over time?

7. Where would you be working now if not within

We have always focused on identifying situations
where intrinsic worth is inappropriately valued,
where cash flows are priced incorrectly. Our
process has always focused on business model
robustness, accounting quality, and people
at a board and management level. Where we find
that we are being contrarian and investing in
companies or sectors that are out of favor, we are
comfortable backing our view.

financial services?

We have confidence in our investment process
and in the team applying it, and believe that a
concentrated approach is the right path to follow if
we want to achieve our alpha objectives.
4. What gives you the conviction to stick with a

9. What do you enjoy doing when you aren't

stance through rough times?

managing money?

Experience, patience, and a structured investment
process can help you work out whether to hold
a position or look for the exit door. Investing can
generate peptic discomfort, but it is often the
situations that engender the greatest introspection
that can deliver the most attractive returns.

Music is important to me. It is a great reminder
of the creativity within people and can be a very
healthy shock absorber to the human condition.

Analysts need be highly numerate and have good

Morningstar August/September 2017

8. What is your favorite book to recommend?

It's impossible to pick a book, but one that never
fails to enrich is Guns, Germs, and Steel:
The Fates of Human Societies by Jared Diamond,
a beautifully written account of how geography
and environment have affected civilization
and shaped the modern world.

3. Why run a concentrated portfolio?

5. What skills do you value most in an analyst?

80

I quite like the work done by an Australian
charity called Cooperation in Development (CO-ID).
CO-ID establishes schools in Bangladesh, with
local communities providing the land. Its model is
exemplary, and I'm attracted to the idea of it being
rolled out in other developing countries.

10. With Midnight Oil back on tour, what other

Australian bands would fans like?

I'd be keen on seeing the Eddy Current
Suppression Ring and Royal Headache play more
than a couple of times a year.
Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2017
