Zenith adds two funds to recommended list in small cap sector review

Zenith Investment Partners has added two funds to a list of eight recommended funds in its review of the Australian small companies fund sector.

A mid-cap fund run by Concise and a micro-cap fund run by the small companies investment team at Challenger were added to the list. Forty-one funds were reviewed in the sector.

Ben Davis, the associate director at Zenith, said that while small caps have not performed as well as large cap companies when analysing index returns, active managers can consistently and substantially outperform in the mid and small-cap sector.

"Skilled small and mid-cap managers can also provide more protection in down markets and enhance portfolio returns in more stable and bullish environments," he said.

Zenith investment analyst James Tsindis said managers that performed the best in the current environment focused on strong cash flows and low levels of debt.

There is significant value in the market in the sector, Tsindis said, and managers are starting to rotate into cyclical stocks such as retail, and home building sectors based on drivers such as falling interest rates and low fuel costs.