Investment manager Pie Funds had a large holding in ASX-listed energy services firm Titan before selling 3.6 million shares in the company as the share price dropped from A$3.70 at the end of last year to A44c on Friday.

It had previously been listed in Pie Funds’ newsletter as one of its largest holdings and its move out seemed to slash the share price.

Pie Funds is believed to have started selling Titan in March this year and fully exited when the stock was priced at A64c.

On October 2, Pie Funds issued a notice saying it had ceased to be a substantial holder of securities.

Rebecca Thomas, of Mint Asset Management, said the domestic equity market was illiquid below the top 10 stocks.  “Managers that have significant positions – over 5% - in the smaller listed end of the spectrum will find it very, very difficult to get in and out on any given day.”

She said the Pie Funds’ Titan investment had been a concentration risk. “Anybody who has got a substantial shareholding will find it very, very difficult, if they’ve got a large percentage of their portfolio invested, if something goes wrong in one of the stocks.”

Thomas said retail investors were not well suited to the sort of volatility that could be caused by having such high conviction positions. “That impact was felt by Fisher Funds when they had very large holdings in Australian smaller company stocks, and New Zealand small company stocks and by Milford Asset Management with Moa when they had a profit warning that went the other way. It does demonstrate how illiquid New Zealand can be on a bad day at the smaller end of town.”

Chris Swasbrook, of Elevation Capital, said fund managers should be focused on the impermanence of capital and position themselves cautiously as a result. He said Elevation had larger than average cash balances and would typically invest in highly liquid, large cap international stocks rather than small cap domestic equities.

Pie Funds founder Mike Taylor did not want to comment.