Disruptors prove fruitful for DNR small-cap fund
The Australian market is entering a period of disruption, according to DNR fund manager, Sam Twidale, as newer entrants challenge traditional players.
Twidale, who joined DNR from Schroders in 2017 to launch the firm’s Australian Emerging Companies Fund, said banking and retail were among sectors affected.
In banking, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was impacting the traditional Big Four banks and making it easier for newer financial services entrants to come to the market.
Twidale highlighted small-cap payment company Afterpay which had 3.5 million customers worldwide and positioned itself as a competitor to credit card companies. It offered customers the option to pay for purchases in instalments, without charging interest.
Over the past six months, shares in Afterpay have risen by 83 per cent, according to FE Analytics, having signed up international customers such as sunglass retailer Rayban and Kim Kardashian West’s KKW Beauty.
“Afterpay reports sales are expected to increase 4x to more than $20 billion by full year 2022. The US and UK expansions are still in their infancy with further geographic and product expansion to come.”
Meanwhile, in the retail space, the introduction of Amazon to Australia was likely to present a threat to established High Street department stores such as Myer and JB HiFi.
“There is a lot of disruption happening in Australia right now, there are several areas that will be disrupted in the future. Amazon, in particular, is a threat as department stores here have poor online offerings and companies have seen what happened to traditional bricks and mortar retailers in the US and UK,” said Twidale.
The DNR Capital Australian Emerging Companies fund has returned 17.3 per cent over the past six months to 9 May 2019, according to FE Analytics, versus returns of 4.3 per cent by the ACS Equity- Australia Small & Mid Cap sector.
The fund was also highly concentrated with just 24 holdings and Twidale said he intended the figure to remain around this mark, resulting in a best ideas fund.
“When I was at Schroders, I ran a 55-stock fund and I found I was spread too thinly. This fund is a concentrated best ideas and every idea adds to performance. We are seeing a move generally towards highly-concentrated, active share portfolios.
“We do a lot of work on meeting companies, deep analysis and we wouldn’t have that depth of analysis if we covered too many stocks.”
AUTHOR
Laura Dew
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