3 small caps powering Ryder Capital’s double-digit growth and fully franked dividends

**James Marlay** (0:03)
Today, on The Rules of Investing podcast, I'm talking with Lauren De Zilva, Portfolio Manager at Ryder Capital. Ryder Capital Limited, ASX code RYD, is a listed investment company. A part of the market that has, at best, flown under the radar, and perhaps more accurately, fallen out of favor with investors. But sometimes, that is where you'll uncover opportunity.
Ryder Capital has just delivered its third consecutive year of 25% plus returns from investing in the far corners of the small and micro cap market, which is what we'll be diving into today. Now, make sure you stick around to hear about some of the small companies Lauren believes have big potential.
My name is James Marlay, and this podcast is brought to you by Livewire Markets. And Lauren, welcome to the podcast. Great to have you on.

**Lauren De Zilva** (0:49)
Thanks, James. Pleasure to be here.

**James Marlay** (0:51)
Now, I just want to give listeners and viewers a quick bit of background. I was introduced to Ryder Capital by Daryl Wilson, who those familiar with Daryl will know he is a specialist listed investment company investor. And I've been following the story over the past 12 months since Lauren and I spoke. You've been writing on the website.
Performance for Ryder has been really strong. Dividends are paid quarterly now, with the current yield around 6.9% fully franked. And it's got a profit reserve that would cover that dividend for the next five years. So a really interesting opportunity. A lot of our audience are interested in those fully franked dividends, they also like growth. Ryder seems to tick the boxes. And what we're going to find out today is that the portfolio looks absolutely nothing like the index. So if you're going to get an active manager to do a job for you, it might as well do something that's completely different. So with that bit of background, I thought we would just start, Lauren. Perhaps give us a bit of background on Ryder. My understanding is it was effectively set up to manage the founders' money.
Tell us a bit about the backstory and the underlying philosophy for how Ryder invests.

**Lauren De Zilva** (2:00)
Right. So Ryder was started around the time of the GFC. And to your point, James, it was effectively to manage the founders' money.
They were seeing so many opportunities and ideas and the chaos of the GFC that they came up with this co-investment model, where it was essentially performance fee only, offering these high conviction single stock ideas to friends and family.
That strategy was really successful. It grew over time beyond friends and family, to new clients, new investment partners.
Very, very successful. I mean, a good example of that is NECDC. So Ryder invested in that at $2, exited at $12 over sort of seven years, made over $100 million in that investment for our partners. And so the success of that strategy, it became a bit big and hard to manage administratively, just with all the different sort of partners we had. And that led to us launching the LIC, RYD, which you talked about before. And the LIC was built with the founding DNA of the firm, which has research-driven bottom-up stock selection, in-depth due diligence, focused on doing the work and tilting the odds in our favor. And our philosophy is really around identifying this pricing in the market, finding stocks that we believe are trading at a discount to their intrinsic value. And typically, these are stocks that are overlooked temporarily out of favor. Maybe they sit outside of indexes, don't get the attention from the rest of the market.
We're very much focused on value, which sort of naturally feeds into downside protection, minimizing errors, risk mitigation. We're very focused on protecting capital and protecting those returns to support generating long-term performance. And we're focused on small caps, small and micro caps. So that's where the mispricing is more prevalent. You know, in large caps, you've got heaps of different analysts and brokers and research houses actually looking at those stocks. And it's very hard to actually get an edge over the rest of the market because everyone's looking at it. So we're looking in places where there's less research, less eyes on it. It's under owned. And typically the earnings profiles in those types of businesses, there's more nuances behind it. It's not as easy to understand or straightforward as a lot of large caps. And underpinning all that, we're very much focused on alignment. So the business was founded to set up to manage the founders' money. And the whole investment team invests alongside all of our investors.

**James Marlay** (4:41)
So Lauren, we've talked about the founder as if some kind of mythical creature. Tell us a bit about Peter Constable and also how you got introduced to Ryder, your interest and background in investing and what is it about Ryder's way of investing that appeals to you?