Small cap outperformance driven by positive earnings growth
Investors would be worth considering exposure to Australian smaller companies as they have performed better than large-cap counterparts and have achieved positive earnings growth, Flinders Investment Partners believes.
Earnings growth expectations for companies in the Small Ords index was 24.5% compared to 11.8% for companies in the ASX 100 and small companies were trading at around 17x PE which was in line with the historical average.
Andrew Mouchacca, manager of the Flinders Emerging Companies fund, said: “The key outcome here is the attractiveness of the small cap sector from both a growth perspective, compared with large caps, and from a valuation perspective, particularly when compared with mid-caps.
“It is also important to note that the earnings growth has been achieved off positive earnings growth for small caps in FY20, while large caps delivered negative growth in FY20.”
Over the last five years, the median small-cap manager had outperformed the Small Ords index by 1.3% per annum while the average large-cap manager had tended to perform in line with the index.
Average returns were 11.8% versus 10.5% per annum for the Small Ords index while large-cap ones had returned 7.9% versus index returns of 7.5%.
This was due to the higher dispersion of returns in the small-cap universe which meant a greater opportunity to add value and for managers to demonstrate their stockpicking ability.
AUTHOR
Laura Dew
Recommended for you
Australian fund managers are actively seeking to launch Cayman versions of their funds to attract offshore flows, with Regal Partners set to launch its latest offering this month.
As private markets gain traction in Australia but only a limited pool of talent is available, three recruiters explore whether fund managers should consider looking overseas to find top talent.
With an explosion of private credit managers appearing in the market, two alternatives experts believe a consolidation is needed to maintain the quality of the sector.
Bentham Asset Management has become the latest fund manager to expand its distribution team as it reports increased interest in its credit strategies.
