Many investors aim to invest like ‘smart money’, institutional investors who spend their time analysing stocks and deploying millions into their portfolios. Research shows it is possible to outperform the market by piggybacking their moves. For instance, shares often rise when institutional investors take high-conviction positions in a company.
At the same time, blindly copying smart money can feel like copying someone else’s homework. There is a better approach. Understand smart money techniques and apply them as part of your own skillset. As the saying goes: “Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for life.”
With that in mind, I’ve analysed trades made by Rockwood Strategic, an investment trust focused on turnaround opportunities. Studying their trades reveals various qualitative and quantitative rules - practical criteria that can be used independently, so that we’re not just imitating smart-money investors. Instead, we can use smart money trades as timing signals within our own framework of analysis.
Who are Rockwood Strategic?
Let’s start by understanding who Rockwood Strategic are.
- Their strategy targets cheap turnarounds - i.e. ‘undervalued’ companies likely to benefit from operational, strategic or management changes.
- Their portfolio stays concentrated in around 25 stocks, where the top 10 holdings constitute approximately 60% of NAV.
- Their approach adds value through active engagement with their investments.
- This strategy seems to have paid off in recent years. Their NAV returned 21% in 2024–25, compared to just 3.4% for the FTSE Small Cap.
I examined holdings that made up a large portion of NAV. Their statements don’t provide a formal investment checklist, but we can infer criteria by examining the financial data of Rockwood’s holdings at the time they began investing. Sometimes Rockwood tells us exactly when they started buying. For example, their statements note: ‘We commenced buying M&C Saatchi for the strategy in November 2020.’ When these details are unavailable, I used a proxy, namely the date when a holding first appeared in the financial statements.
A Smarter Approach to Value
The word ‘undervalued’ appears frequently in Rockwood’s statements, but they never define it in quantitative terms. They don’t explicitly state a preference for companies with a P/E ratio below, say, 15.
Even so, we can see that Rockwood often targeted companies trading below their historic median P/E ratio. Rather than applying an arbitrary valuation threshold, they often compared…
