Open your eyes to small caps
Australian investors and the media overly focus on large cap stocks, and miss out on outperformance from small caps, according to boutique investment manager, Terra Capital.
Terra Capital's chief investment officer, Jeremy Bond said, "It can pay to look beyond the obvious".
Terra Capital's new horizon fund outperformed the All Ords by 23 per cent (year-to-date) and posted a gain of 30 per cent after fees. The fund also significantly outperformed the ASX Small Ords Index by 16 per cent in the same period, Bond said.
"The reasons why investors focus on big-stocks are understandable, particularly in a market like Australia where just seven stocks dominate the index, with four big banks, two miners and one Telco."
Those companies made up just 50 per cent of the Australian index and were nearly in every investor's portfolio, he said.
"Our view is not that investors should avoid the majors, but that there is excellent and often overlooked opportunity beyond these options."
For example, a little known stock, Nvoi Limited, contributed significantly to Terra Capital's new horizon fund, Bond said.
Nvoi was a global employee hiring platform that flew under investors' radars when Terra Capital bought it at $0.025 and $0.06. It was now trading at $0.11, said Bond.
But Nvoi was just one small cap business that fit into Terra Capital's high conviction fund, as it was innovative, operated on a global scale, generated strong cash flows and had a strong management team, Bond said.
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