Micro caps standing out
Micro caps present bright opportunities beyond general mid and small-caps as two of the five best performers in the Australian small/mid-cap sector focus solely on micro-cap equities.
According to FE Analytics, within the Australian Core Strategies universe, the Australia small/mid cap equity sector had lost an average of 1.6%, over one year to 31 July, 2020.
The best-performing fund was DMP Australian Small Caps Trust which returned 16.91%, followed by OC Micro-Cap (15.67%), Ophir Opportunities Ordinary (14.73%), Perennial Value Microcap Opportunities Trust (14.44%) and Hyperion Small Growth Companies (14.4%).
The OC Micro-Cap fund was a finalist in Money Management’s 2020 Fund Manager of the Year Awards in the Australian Small/Mid Cap category and it wasn’t alone with the Ausbil MicroCap fund being nominated as well.
The fund’s top holdings were luxury homewares retailer Adairs, financial service enterprise CML Group, health and beauty consumer product producer McPherson’s, cloud software service Rhipe and buy now/pay later (BNPL) firm Sezzle.
In its July performance review, the fund cited Sezzle and Marley Spoon as two of the standout micro-cap performers.
“…the market has gained an appreciation that the pandemic would help to drive adoption of [Sezzle’s] offering as online shopping surged in popularity due to social distancing restrictions and consumer fears around shopping in-store,” the fund said.
“The BNPL segment has two key tailwinds, namely millennial’s aversion to credit cards and the growth in the ecommerce channel.
“Marley Spoon was another holding, early in its evolution, that has been a beneficiary of the COVID-19 crisis with customer growth accelerating rapidly and existing customers ordering [Marley Spoon’s] products more frequently since social distancing restrictions were announced.”
The Perennial fund’s top holdings were Marley Spoon, environmental services firm HRL Holdings, Swick Mining Services, Alliance Aviation Services and gold miners Ora Banda Mining.
Andrew Smith, Perennial head of smaller companies and microcaps, said: “There is a large universe in micro-caps which is poorly covered by the broker community - hence with hard work by our large team we were able to uncover strong growth stories which were being missed by the broader investment community and trading at attractive valuations.”
Although the fund was only just over three years old, it still drew on the experience of the management of Perennial’s small cap fund that started in 2002.
“What is most pleasing about the recent performance was that we did it with a larger funds under management (FUM) base,” Smith said.
“The microcap fund had $200m in FUM at August last year and yet FY20 was one of our best years - this demonstrates that our performance is more about detailed research and stock picking than being nimble with smaller FUM which we had in our first year of the fund.”
Best-performing Australian small/mid cap funds over one year to 31 July 2020
AUTHOR
Chris Dastoor
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