Risk management breaks the ICE

Stock-picking is a crucial skill in the notoriously volatile small cap market, with efficient use of risk a key aspect of SG Hiscock's (SGH) ICE fund's success.

Money Management/Lonsec Fund Manager of the Year Australian Equities (Small Cap) Award winner, SGH ICE fund portfolio manager, Callum Burns, said the fund is "one of the most efficient users of risk in the market".

"When you look at risk adjusted returns, it's been near the top five per cent over one, three, five and seven years, so that risk adjusted return is a key highlight," he said.

"The companies in the ICE fund have grown earnings in excess of 10 per cent per annum over the last five years, whereas growth of earnings in the market at large has been minimal."

For Ed Prendergast, senior fund manager of the Pengana Emerging Companies Fund, the focus on keeping the size of the fund manageable has been critical to its success.

"When we opened the fund at zero FUM more than 10-plus years ago, we said we would target a manageable size, which is half a percentage point of the total market," he said.

"And we've closed the fund every time it's hit that limit as practically as we can.

"Over the last two years, once we closed it, our performance has seen the size of the fund keep on growing [so] we've been handing back money to the unit holders."

Meanwhile Aberdeen Asset Management head of equities, Robert Penaloza, said the house philosophy of "buying quality at the right price" was a key factor in Australian Wholesale Australian Small Companies Fund's success.

Penaloza added that the small cap market was "fraught with a lot of risk" for passive investors, and the fund focused on investing in companies with strong strategies, good management, financial resources, and a good attitude towards shareholders.