Australian small and mid-caps have greatly outperformed the broader Australian equities sector, as smaller growth companies see a boost post-crisis.
According to FE Analytics, within the Australian core strategies universe, the Australian small and mid-cap sector had an average return of 16.29%, over the 12 months to 31 December, 2020.
The Australian equity sector had an average return 3.95% and the best-performing fund in the sector was focused on pre-initial public offering (IPO) stocks.
Small and mid-cap sectors had been expected to rebound post-crisis, after strong rebounds in the years following previous crashes.
The best-performing fund was Lennox Australian Microcap which returned 45.4%, followed by OC Micro-Cap (43.14%), DMP Australian Small Caps Trust (42.66%), Perennial Value Microcap Opportunities (36.14%) and Australian Ethical Emerging Companies (35.93%).
Lennox’s largest contributors included overweight positions to Booktopia which IPO’d last quarter, Sovereign Cloud and Mesoblast; its largest detractors were overweight positions in Viva Leisure and McPersons.
“McPhersons was down 25.5% in December as the company released a trading update, reducing PBT [profit before tax] guidance down significantly, as well as announcing the resignation of its chief executive,” the fund said.
“We believe the companies issues are temporary and its valuation at current prices remains attractive relative to its medium-term prospects.”
The OC fund had also invested in Booktopia, which was now one its top holdings, as well as Frontier Digital Adventures, Galaxy Resources, Propel Funeral Partners and Telix Pharmaceuticals.
During Q4 it had also invested in several other IPOs which included Doctor Care Anywhere, Sovereign Cloud and GenusPlus.
“Early in the pandemic we repositioned the fund including adding companies that were resilient and innovative structural winners, who could control their own destiny and who could continue exploit their competitive advantage, taking share from lower-tech incumbents, and grow independently of the economic cycle,” the fund said.
“Coupled with the numerous recapitalisations that the fund participated in over the balance of the year and the myriad successful IPOs that we supported, it was a strong overall year for fund investors.”
Perennial’s top holdings included Marley Spoon, Scidev, Alliance Aviation Services, Micro-X and Good Drinks Australia.
As with it’s Private to Public Opportunities fund, the Microcap fund had also taken pre-IPO positions on Booktopia and Doctor Care Anywhere.
Best-performing Australian small and mid-cap funds in 2020
The Australian small and mid-cap sector outperformed the broader Australian equity sector as smaller growth stocks benefitted from the market recovery.
