Small cap opportunities creep back into market

Opportunities for investors to access quality small caps are significantly improving following a surge in the number of new industrial companies listing on theAustralian Stock Exchange(ASX).

According toRetireInvestresearch manager Simon Wills, the listing of companies like JB Hi-Fi, Repco, Just Jeans and Invocare may help to turn around the dire situation small caps (as a group) have been facing for near on a decade now.

According to Wills the stock universe for small cap funds has rapidly declined over the past decade, with small caps (companies outside the S&P/ASX 100 index) falling from 14 per cent of the S&P/ASX 300 in 1994 to only 6 per cent at present.

Willis says the shortage of small cap stocks had been due to the drop in the number of company floats over recent years, but also because quality small caps have tended to be classified as medium cap.

This has resulted in small cap fund managers including medium cap stocks in their portfolio because of the shortage of quality small cap stocks.

However Willis also says if a small cap fund performs well and attracts many new investors, its ability to continue to add value will be restricted by liquidity constraints.

“Over recent years, size concerns have led to many small cap managers closing their funds to new investors,” Willis says.

RecentlyPortfolio Partnersflagged the closure of its small-cap Emerging Shares Trust to institutional investors to use its remaining capacity for retail inflows sourced through master trusts, after its funds under management reached $480 million - just short of an intended $500 million cut-off.

While last year,Investors Mutualclosed its Australian Smaller Companies Fund at $300 million,Perpetualclosed its Wholesale Small Companies Fund at $500 million, andINGshut its Emerging Companies Fund.