Six small and mid-cap Australian equity funds have managed to achieve positive returns over the past 12 months, despite small-cap indices suffering worse than their large-cap counterparts, according to data.
Small caps tended to have less liquidity and more debt than large-caps and were considered riskier especially in a crisis which meant investors favoured the safety of established names.
Over one year to 30 April, 2020, the ASX Small Ordinaries index had lost 13% and the ASX Small Industrials index had lost 14% compared to losses by the ASX 200 of 9%.
According to FE Analytics, the Australian small/mid cap equity sector, within the Australian Core Strategies universe, lost an average of 12% over the 12 months but six funds had managed to perform positively.
These were OC Micro-Cap (4.3%), DMP Australian Small Caps Trust Wholesale (3.4%), Bennelong Emerging Companies (2.3%), Perennial Value Microcap Opportunities Trust (1.8%), Hyperion Small Growth Companies (1.5%) and Australian Ethical Emerging Companies (0.4%).
Among factors cited by managers as performance contributors included exposure to healthcare and technology, increased cash weightings and a focus on quality stocks.
“In the current environment, we have been particularly focused on quality. To this end, we want to be invested in companies that should come out the other side largely unharmed and with their value intact,” Bennelong wrote in its most recent factsheet.
Australian Ethical noted: “We have been actively managing the fund during the sell-off in order to position for the inevitable share market recovery. The abrupt economic crisis created in the wake of the COVID-19 pandemic has decimated the short-term outlook for many quality Australian companies; but perversely, some healthcare and technology names have been relatively unaffected”.
However, since the start of the year, there was not a single fund which reported positive returns with the best-performing fund, Hyperion Small Growth, seeing losses of 6.2% and the sector seeing average losses over the period of 19.7%.
In its factsheet to 31 March, 2020, Hyperion said this type of market environment suited the fund’s investment style.
“This low growth and slowing economic environment best suits Hyperion’s investment style. Hyperion has a portfolio of modern businesses that are typically better positioned to operate digitally and remotely.
“Increasing cash levels to double-digit rates, removing cyclical positions and increasing the weight of businesses with robust business models that have strong value propositions and low or modest levels of financial gearing attributed to our results.”
Performance of ASX Small Ordinaries and Small Industrials versus ASX 200 over one year to 30 April, 2020
