Small-cap firms see benefit of overseas business
Opportunities in the small-cap space have significantly increased in the last five years, according to SG Hiscock, as more firms find themselves able to expand their businesses overseas.
Small-cap funds had returned more double their large-cap counterparts over the past year with the Australian equity sector returning 10% over one year to 28 February, 2021, and the Australian small and mid-cap sector returning 25%, within the FE Analytics Australian Core Strategies universe.
SG Hiscock, which runs three small-cap funds, said it had noticed the ability of smaller companies to sell their products overseas which had traditionally been a hurdle for Australian firms due to the geographic distance.
Stephen Hiscock, managing director of SG Hiscock, said: “We are seeing more opportunities in small caps than there were five years ago. There has been a sea change in firms’ ability to invent stuff that is globally applicable.
“Australian companies can’t often go overseas as Australia is so faraway but it is easier for companies with technology or intellectual property than it is for physical goods. There are opportunities where are seeing excellent stuff.”
He gave the example of Brisbane medical company Ellume which had invented a high-speed COVID test that had been recognised by the US Food and Drug Administration (FDA). The firm was founded in 2010 but was not yet listed on the Australian Securities Exchange (ASX).
“Ellume has a high-speed COVID test which unfortunately was passed over by the Australian government but has been picked up by the US government. It is one of the fastest COVID tests in the world and the valuation of Ellume has gone up 8x in the last 12 months. The US government is also allowing the firm to produce the test in the US which is fantastic.”
The firm’s SGH Emerging Companies fund returned 58% over one year to 28 February, 2021, according to FE Analytics, compared to returns of 25% by the Australian small and mid-cap sector.
Meanwhile, the fund was hurt by its weighting to gold companies with five resources companies all being detractors during February. These were Middle Island Resources, Ramelius Resources, Red 5 Ltd, Musgrave Minerals and Westgold Resources which all saw double-digit declines.
“The sector has had a considerable correction since its highs in August last year. However, with rising inflationary pressures, large budget deficits and central bank quantitative easing, we look to maintain our portfolio gold exposure,” the firm said.
AUTHOR
Laura Dew
Recommended for you
AUSIEX has announced it will acquire FIIG, a specialist fixed income provider with $4.5 billion in funds under advice.
Platinum Asset Management has announced it is in discussions with a global alternatives fund manager regarding a possible merger to create an $18 billion firm.
JP Morgan Asset Management has appointed an ETF specialist from Vanguard as it seeks to expand its ETF range.
The alternative asset manager has expanded its Singapore office with a head of Asian distribution, representing a “critical step” for the Asian business, where it is seeking to launch new offerings.
