Best Small Com­pa­nies Funds

The fo­cus is on com­pa­nies that can gen­er­ate plenty of cash and have growth po­ten­tial

Money Magazine Australia - - CONTENTS -

Smaller com­pa­nies funds bounced back in the past 12-months, pro­vid­ing in­vestors with strong re­turns.

The Sphe­ria Aus­tralian Smaller Com­pa­nies fund was out­right win­ner of this cat­e­gory, af­ter be­ing in joint sec­ond place last year. Its port­fo­lio con­sists of 25 to 45 stocks with an ex­pected turnover of 30%-40% a year, says Morn­ingstar an­a­lyst Michael Malseed.

“Sphe­ria Aus­tralian Smaller Com­pa­nies con­tin­ues to be an ap­peal­ing op­tion in the small-cap space as it re­mains nim­bler than many peers,” says Malseed in an Oc­to­ber 2018 re­port. Es­tab­lished in April 2016, the fund is still a rel­a­tively new bou­tique, backed by Pin­na­cle In­vest­ment Man­age­ment.

“Mar­cus Burns and Matthew Booker, the founders and port­fo­lio man­agers, have ex­ten­sive fi­nan­cial mar­kets ex­pe­ri­ence,” says Malseed.

The fund em­ploys a rel­a­tively straight­for­ward in­vest­ment process, fo­cus­ing on com­pa­nies with strong free cash flow gen­er­a­tion, sound balance sheets and at­trac­tive val­u­a­tions based on mid-cy­cle earn­ings es­ti­mates. “A will­ing­ness to in­vest a por­tion of the port­fo­lio in unloved, turn­around op­por­tu­ni­ties results in value tilt but the duo of­ten finds merit in a num­ber of high-qual­ity growth names whose near-term mul­ti­ples trade at a pre­mium. Over­all, its struc­ture and ex­pe­ri­ence make the fund an at­trac­tive propo­si­tion.”

Malseed does point out that with a base fee of 1.10% and a per­for­mance fee of 20% on bench­mark-beat­ing re­turns, the fund is not the cheap­est of­fer­ing.

Seven funds took equal sec­ond place, in­clud­ing last year’s joint win­ner, Ben­ne­long ex-20 Aus­tralian Eq­ui­ties, which typ­i­cally holds 20 to 50 stocks. “In­vestors look­ing for a high-con­vic­tion growth man­ager have a lot to like in Ben­ne­long ex-20 Aus­tralian Eq­ui­ties de­spite the pres­ence of some un­der­ly­ing is­sues,” says Morn­ingstar an­a­lyst Matthew Wilkin­son.

A big is­sue is high key-man risk as a lot rests on the shoul­ders of Mark East, says Wilkin­son, who de­scribes East as “one of the best port­fo­lio man­agers in the mar­ket.”

Other equal-sec­ond funds are:

Fidelity Fu­ture Lead­ers typ­i­cally holds 40 to 70 stocks. The fund’s strengths in­clude a thought­ful port­fo­lio man­ager, a well-con­sid­ered in­vest­ment process and a struc­tured port­fo­lio method­ol­ogy, which should re­ward in­vestors through the cy­cle, says Morn­ingstar an­a­lyst Ross MacMil­lan.

No­vaPort Mi­cro­cap in­vests in a diver­si­fied port­fo­lio of be­tween 25 and 65 stocks mainly in listed Aus­tralian com­pa­nies with a mar­ket cap­i­tal­i­sa­tion of less than $250 mil­lion at the time they are first ac­quired.

Its in­vest­ment ap­proach is un­der­pinned by the be­lief that there are sig­nif­i­cant in­vest­ment op­por­tu­ni­ties in mi­cro-cap com­pa­nies due to in­ef­fi­cien­cies in the mar­ket.

OC Mi­cro-Cap has a port­fo­lio of 25 to 60 stocks de­signed for in­vestors who want di­ver­si­fi­ca­tion and strong cap­i­tal growth over the long term. To achieve this, the team in­vests in mi­cro­cap Aus­tralian com­pa­nies with sus­tain­able busi­ness mod­els and at­trac­tive in­vest­ment qual­i­ties.

OC Pre­mium Small Com­pa­nies in­vests in about 40 com­pa­nies. “Over­all this is a qual­ity of­fer­ing with many de­sir­able char­ac­ter­is­tics, in­clud­ing a skil­ful port­fo­lio man­ager and a solid in­vest­ment process,” says Morn­ingstar an­a­lyst Ross MacMil­lan.

Pen­dal MidCap is an ac­tively man­aged port­fo­lio of 40 to 60 stocks se­lected by the in­vest­ment team em­ploy­ing a bot­tom-up val­u­a­tion process. It’s de­signed to com­ple­ment a con­ven­tional, core share port­fo­lio by pro­vid­ing satel­lite ex­po­sure to se­lect Aus­tralian mid-cap eq­ui­ties with the po­ten­tial for per­for­mance en­hance­ment.

SGH ICE holds a diver­si­fied port­fo­lio of 30 to 50 Aus­tralian stocks. “The fund’s strat­egy seeks to in­vest in stocks that have a sus­tain­able com­pet­i­tive ad­van­tage and are likely to have high fu­ture re­turns,” says Morn­ingstar an­a­lyst Sarah Fox. “A dis­ci­plined ap­proach and an edge in com­pany anal­y­sis make SGH ICE one of our top picks in this space.”

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.