PICKING UP THE PIECES

Amid wide-scale carnage in the small- and midcap sectors in 2018, the FM’S stock picks gained 10%. So which companies are the juiciest among the small fry?

If the JSE was a painful place in 2018, then punters who doggedly pursued opportunities in the small- and mid-cap sector will probably show the deepest scars. Officially the small-cap index fell about 18% in 2018, with the mid-cap index crimping 11%. The JSE industrial board, home to a slew of small- and mid-cap stocks, was off a hefty 20%, while the Altx (which includes many entrepreneurial counters) was off 12%.

A good number of former smalland mid-cap darlings came a horrible cropper during the year. These include Ascendis Health (down about 78%), Blue Label Telecoms (down over 60%), private education group Curro (down 40%), Metrofile (35% lower), Zeder Investments (down 35%) and industrial giant Invicta (down 32%).

The market was not in a forgiving mood when it came to perusing negative news or strategic setbacks. Predictably, there was persistent chatter as some large fund managers abandoned

What it means:

small-cap mandates and set market capitalisation floors for their portfolios.

Which doesn’t mean the fear was unjustified: some businesses are backed up right against the wall. Construction companies Aveng, WG Wearne, Esor and Group Five are trading at a smidgen of their pre-soccer World Cup peaks. Franchiser Taste Holdings, which owns global food brands Starbucks and Domino’s, is again scratching for fresh funds, while sprawling building supplies business Distribution & Warehousing Network is likely to be bought out in a precariously pitched 1c a share offer.

Against this background, the FM’S small-cap portfolio performed commendably, with a return of about 10% (if dividends are included).

Our portfolio benefited from a lateyear acceleration from logistics specialist Value Group and the market warming (finally) to an ongoing sale of assets in investment company Stellar Capital Partners. The buyout of engineering industrial supplies group Howden Africa and smaller gains by Wescoal and Capital Appreciation also boosted returns. The bias is on value or, more succinctly, opportunities where significant downside seems extremely limited