By Tom Richardson


Wilson Asset Management fund manager Tobias Yao says the best influences on his life are the women in it.

First, his mother, to whom he attributes his successful career after a somewhat nomadic existence growing up.

“I was born in Shanghai and single-handedly raised by my mother,” says Yao. “She worked multiple jobs and instilled in me the importance of having a strong work ethic, integrity and figuring things out for yourself.

“She’s the opposite of a tiger mum. She was happy for me to pursue my own interests.”

As an only child, Yao lived in the United Arab Emirates, South Africa and New Zealand with his mother before settling in Australia in 2001 aged 14.

“So I’ve done the tri-nations. I’m an All Blacks fan,” says Yao. “Mum’s a very happy grandma now. I’ve got an appreciation myself, as a new dad, of understanding the sacrifices as a parent.”

After attending North Sydney Boys high school, he won a co-op scholarship to study accounting and finance at the University of NSW, where he met his wife in 2006.

“It was love at first sight for me, but it took some time. You know, she didn’t make it easy for me,” laughs Yao. “But I just kept chipping away.”

After three months of lockdown and little chance to get a haircut, he jokes the photos could make him “look like a certain North Korean dictator”, but is earnest in conversation about his Wilson Asset Management Microcap Fund.

The new Afterpay

The fund has returned an impressive 14.3 per cent a year before fees under Yao’s stewardship since its inception in 2017, which is 7.5 per cent ahead of its benchmark, the S&P/ASX Small Ordinaries Accumulation Index.

“One of the things we do quite a bit is investing in disruption and innovation. One of the key themes for us has been e-commerce. We were IPO investors in Afterpay, which has been a phenomenal success.

“The seismic shift to e-commerce is a multi-decade growth journey and we have very strong conviction that is the case.

“So we’re finding the next ASX100 companies in the micro-cap space. It’s impossible to find the next Afterpay, but I have found one that looks pretty good.”

According to the stock picker, this lesser-known e-commerce business boasts many of the qualities Afterpay had at the time of its initial public offer.

In fact, the laser-like focus on the customer espoused by management at Afterpay made such an impression on Yao that after meeting the management of online-only homeware retailer Temple and Webster in 2017, he invested almost straight away.

“We believe what makes a good business-to-consumer company is creating an intuitive product and brand that resonates with customers, so that the customers come back repeatedly and through word of mouth tell their friends,” says Yao.

Since 2017, Temple and Webster shares have gone from 24 cents to $6 thanks to its surging sales and profits, but Yao is confident the online-only business model and e-commerce tailwinds mean this could be the start of the story.

“Why are they disruptive to the bricks-and-mortar retailers? Firstly. they are pure online so they are not burdened by rent, which is a fixed cost,” says Yao.

“Online penetration in the furniture and homeware space a couple of years ago was under 5 per cent and we thought that was way too low versus the US and UK, which was around 15 per cent at the time.

“So we wanted to back the market leader in the space who we hoped would be the first one to reach scale.”

According to Yao, Afterpay is now like a snowball rolling down a hill as the larger size and weight accelerate the pace of growth and advantages, while a business such as Temple and Webster is potentially at the top of the hill.

“With scale, Temple and Webster can improve the customer offering at a faster pace than its peers.

“The long tail of products allows them to acquire customers cost efficiently and bring them onto the platform and retain them as recurring customers. Due to their model they also enjoy negative working capital, which means they can fund their organic growth with their operating cashflow easily.

“Finally. and probably most importantly, it’s their ability to fine tune the customer experience through offering value, offering choice and improving the shopping experience that is leading to very high customer satisfaction.”

The fundie says another Wilson Asset Management investment in Kogan has a similar unrelenting customer focus under its founders Ruslan Kogan and David Shafer, as it also wants to offer the cheapest prices to customers.

‘Start with the why’ not the what

As a micro or small-cap investor Yao says he and the Wilson team apply a consistent philosophy in approaching investment opportunities.

“We think it’s important to always start with the why, rather than the what.

“So why is the company winning? Rather than what it does. I guess the most important thing is then working out how sustainable its competitive advantage is and the unit economics of the business.”

It’s here that his mother’s ethics of hard work, integrity and commitment come into the picture.

“Yeah, I do over a 1000 meetings a year,” Yao insists.

“It could be a call or face to face. I do a lot of on-the-ground meetings with suppliers, management, customers, opinion leaders, industry experts, analysts. I just try and triangulate all the data points to either support our thesis or tell us we’re wrong.”

The fund manager argues hard work is now more important than ever as the structural shift from COVID-19 will see strong companies get stronger and others fall by the wayside.

Generating the best returns will be about identifying the strongest companies early on.

“We’re just laser-focused on finding companies that can grow regardless of the cycle,” he says.

“Our strategy is to invest in undervalued growth companies with catalysts to re-rate. A catalyst could be understanding a change in the growth trajectory. We need to understand why that’s happening, how sustainable it is and where the business could be in five years.”

‘I’m lucky to be in the industry’

Yao now sits on the board of the UNSW Foundation, which is the philanthropic arm of the university chaired by David Gonski.

“University was a very important juncture in my life, where I solidified my passion for funds management, but also, most importantly, where I met my wife.”

He says the board work involves meetings and driving awareness around university funding, with philanthropic activities also part of the culture at Wilson.

“Our founder, Geoff Wilson, is active in the philanthropy space. He founded the Future Generation companies and he really encourages everyone to pursue our passions.”

Another of Yao’s passions is basketball, although he has less time to indulge it with friends now. He says he views it, like investing, as a team sport where professionals play off each other.

“But even retail investors have their network of mates who they talk to about the stock market, and it’s just extremely enjoyable.

“Not only the mental challenge, but the opportunity to interact with brilliant minds who share the same interest. I’m lucky to be in the industry I’m in every day.”