Aussie small caps perform

Australian equity small cap funds appear to have experienced something of a renaissance, according to the latest sector analysis undertaken by ratings house Standard and Poor’s (S&P).

According S&P analyst Andrew Yapp, the number of participants in the more traditional small-cap market segment has continued to grow — something the ratings house attributed to renewed interest by investors who have been attracted to the alpha produced by small-cap funds.

He said that over the 12 months to May, the average excess return reported by the funds was 9.8 per cent.

“These returns remain high in a historical context and are well above those generated by their large-cap counterparts,” Yap said.

However, he said that it might become increasingly difficult for the small cap managers to reproduce these performance successes.

“In an environment of economic uncertainty, sub-trend forecast growth rates, reduced availability of credit and regulatory change, we believe there will be an increase in the dispersion returns produced by managers in this peer group,” Yap said.

“Gone are the days where all boats rise with the tide. In future a manager’s ability to meet its objectives will become increasingly reliant on the stability and skill of its investment personnel, a proven investment process and a resilient risk framework.”

The S&P sector analysis saw only two fund managers — Eley Griffiths and Invesco — receive a five-star rating