Hudak is a co-portfolio manager of the Australian Small Companies Fund at Maple-Brown Abbott and has worked at the firm since April 2022.
With over two decades of investment experience, Hudak first began his career in investment consulting at Russell Investments before transitioning into funds management. Prior to joining Maple-Brown Abbott, he was an Australian small caps co-portfolio manager at AMP Capital for over 10 years.
Maple-Brown Abbott holds $9 billion in assets under management as at 31 December 2023. Over one year, the firm’s Australian Small Companies Fund has returned 14 per cent versus growth of 7.8 per cent experienced by the S&P/ASX Small Ordinaries Total Return Index.
Read on as Hudak unpacks the evolving landscape of small cap investments in Australia and why investing in resources is a key differentiator for the company.
Money Management (MM): What are the key advantages of investing in small caps?
Phillip Hudak (PH): With small caps, you’re really at the cutting edge of what is going on in the economy. What we’re looking to do is uncover trends that will be in the mainstream media over the next 12 to 24 months.
The other key attraction of Australian small caps is the information advantage that you can gain and the inefficiencies in the market. You have a real chance of adding value above the benchmark or market return, which you don’t see in other asset classes.
MM: Can you tell us about the Maple-Brown Abbott Australian Small Companies Fund?
PH: The fund is focused on discovering undervalued Australian small cap companies with idiosyncratic exposures. We believe this is the most reliable form of alpha generation at the smaller end of the market.
We’re not macro investors, so we don’t take views on economic currency and commodity price inputs. We just use consensus forecasts and rely more on stock-specific factors in relation to our investment philosophy. Earnings is central to everything we do, and we’re not boxed into any particular style.
Another area where we differentiate compared to some of our small cap peers is the ability to invest in resources companies. As long as we can see the earnings delivery coming through for those stocks, what we’re trying to do is focus on those companies that are on the right side of the earnings life cycle.
MM: Why do you invest in resources in particular?
PH: One of the key differentiators we have is the ability to invest in resources. It’s quite interesting that resource exposure, as a percentage of the benchmark at the smaller ends of the market, can range anywhere between 15 per cent and 45 per cent over the last 10 to 15 years.
Our track record shows we’ve been able to achieve a higher percentage of the fund’s alpha from resources positions as compared to the rest of the portfolio. We see that as a clear differentiator versus some of our peers.
MM: What do you see ahead for Australian small caps?
PH: There’s no doubt that over the short term Australian small caps can be quite volatile, but over the long term they have a strong track record of delivering returns in excess of the large cap space. You need to look at the forest from the trees, and the long-term delivery of Australian small caps versus large caps, particularly in active management.
To listen to the full interview with Phillip Hudak and a range of other experts, you may access the Relative Return podcast here.
