Zenith upbeat on small caps
Ratings house Zenith has pointed to attractive investment opportunities continuing to exist among small cap managers, albeit that they are unlikely to perform at the levels recorded in both 2012 and 2013.
The ratings house noted that Zenith-rated small cap managers outperformed the benchmark by 14.75 per cent in 2012 and backed this up by outperforming the same benchmark by 17.82 per cent on average last year.
It said the fund outperformance for 2013 had largely been driven by the divergence in the performance of the industrials and resource sectors, as was the case in 2012 and, more specifically, the substantial underperformance of small resource companies.
Commenting on the outcome, Zenith Investment Partners investment analyst Quan Nguyen said the natural question that would arise would be "can these levels of outperformance continue?"
"We believe that continued fund outperformance that is driven by overweighting industrials relative to resources will be limited, particularly given the relative valuations and weightings of the sectors," he said.
However he noted that while it was difficult to see the same levels of outperformance persisting, Zenith believed attractive investment opportunities continued to arise, especially through the recent influx of initial public offerings (IPO).
"With significant levels of outperformance by managers in this space, total fees charged have increased progressively over the last three years, largely driven by performance fees," Nguyen said. "As such, fees have become an area of focus. While performance fees have been high, on average, Zenith notes that they are only paid when funds outperform, thus investors would have also benefited from higher returns."
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