Datt Capital has announced the launch of a new fund in the small cap space, with high expectations of outperformance ahead.
With a minimum investment of $50,000, the Datt Capital Small Companies Fund is relevant for self-managed super fund (SMSF) trustees seeking to gain exposure to the small cap market sector.
The fund will invest in quality small Australian listed companies outside the S&P/ASX 100, targeting firms with opportunities for long-term capital growth, strong balance sheets, those trading at discounts and companies displaying cyclical upside leverage.
In addition, it will hold between 15 to 25 long equity positions at any given time.
According to Emanuel Datt, chief investment officer of Datt Capital, the new fund will fill a sizeable niche for investors looking to maximise the latent value opportunities within the sector.
“The Future Fund, Australia’s largest institutional investor, has recently allocated capital to active small cap managers providing demonstrable appetite and institutional recognition of the present alpha on offer within the Australian small cap space,” Datt observed.
The $256 billion Future Fund recently handed its active small caps investment mandate to fund manager Maple-Brown Abbott.
“Throughout the year, our research and analysis have concluded that a persistent alpha opportunity exists in the Australian small cap space, underpinned by a significant information inefficiency,” the Future Fund stated in its FY23 Year in Review.
Datt Capital’s new fund was also launched off the back of its learnings from the firm’s successful Absolute Return Fund.
“As part of our process of managing the Datt Capital Absolute Return Fund, we have been able to identify a number of investment prospects in the small company space, and we believe an unconstrained small cap fund will perform well relative to the index,” Datt said.
“This is particularly appropriate in the current market, given our expectations for small caps to
outperform due to their attractive valuations.”
The investment manager pinpointed that the small cap index is currently trading at a material divergence in valuation from the broader market index, allowing for strong returns by small cap funds.
“The end of zero interest rate policy and the end of the dominance of private market capital presents a smorgasbord of small cap opportunities which are mispriced relative to large cap peers,” the CIO said.
“Historically, small caps have been less efficient than large caps which, while carrying more risks, also provide more opportunity to uncover alpha, especially as these stocks are under researched or entirely ignored by analysts.”
