Merrill Lynch makes small/mid cap foray
Merrill Lynch Investment Managers today launched its third Australian equities fund, which will invest in a combination of small, mid and large caps stocks.
The new fund joins the US based fund manager’s two Australian large cap orientated funds, which currently have approximately $3.7 billion under management.
Senior portfolio manager, Matthew Ryland, said Merrill Lynch decided to get into small and mid cap stocks after finding potential in small cap stocks investigated as part of its large cap stock selection process.
“Because we’re bottom up fundamental researchers of stocks, there’s a large number of small cap companies you’ve got to talk to in order to get insight into that large cap company. These could be customers, competitors or suppliers. When we were researching Wesfarmers, for example, we had to interview one of their key suppliers Nufarm, which is now part of the new fund,” said Ryland, who is a former small caps analyst.
Ryland said he was not concerned about recent reports by the likes of Russell and van Eyk that the Australian small cap market could be due for a downturn.
“The percentage of sector weighting of the fund will be capped purely as an outcome of which stocks we find are the best performers. It will purely be ranking company versus company and if small cap stocks become too highly valued, for example, there will be room to reduce their contribution to the fund,” he said.
Ryland also said the fund would test the traditional attitude that small cap stocks are thrown into blended sector funds because they are more likely to outperform.
“What’s really encouraging is our investment process seems to work on the stocks regardless of size. Attribution has come from a combination of big, mid and small cap names.”
Dubbed the Merrill Lynch Australian Growth Share Fund, the new offering will be available to both wholesale and retail investors, with a minimum investment of $25,000.
Rayner said a “more platform friendly” management expense ratio of 65 basis points plus performance fee would apply to the fund.
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