Small cap managers dodge market ‘blow-ups’

Only three funds have gained the coveted ‘highly recommended’ status in Lonsec’s 2008 Small Cap Australian Equity Sector Review, while four funds have found themselves placed on ‘fund watch’.

The review, released exclusively to Money Management, revealed the three funds to gain ‘highly recommended’ status as being the Ausbil — Australian Emerging Leaders Fund, the Eley Griffiths Group — Small Companies Fund and the Pengana Emerging Companies Fund.

At the same time, the Lonsec review revealed four funds on ‘fund watch’ — the CFS WS Small Companies Fund — Core, the Challenger Microcap Fund — Wholesale, Goldman Sachs JBWere Emerging Leaders Fund, and the ING Wholesale — Emerging Companies Trust.

Two new managers were also added to Lonsec’s ‘recommended’ list — the Karara Small Companies Fund and the Schroders Australian Small Companies Fund.

In assessing the Small Cap Australian Equity sector, Lonsec noted that the variance between the best performing and worst performing funds had widened in circumstances where small cap funds had experienced a difficult 12-month period.

One of the key difficulties confronting the sector remained recruiting and retaining key funds management staff and teams.

It said that, not surprisingly, the market capitalisation of the ASX Small Ordinaries Index had declined from $151 billion as at the end of July 2007 to just $104 billion by the end of July this year.

Lonsec said that a contraction in the size of the investible universe (by market capitalisation) imposed additional market liquidity risk for managers, particularly in segments such as the microcap universe and for managers that have a high level of funds under management.

The review noted, however, that most of the small cap managers had effectively avoided blow-ups in the market, such as ABC Learning Centres, City Pacific and Allco Finance.