3 ASX stocks a microcap fund manager is backing through the uncertainty

This interview was filmed Monday 13th April, 2026.

Rate hikes, surging energy prices, inflation fears and a news cycle giving us all whiplash; it's not an easy backdrop for growth investing. But the big question is whether this is transient or is it something that is going to embed itself within company outlooks and earnings. Namely - how is this going to evolve? And how long will it last? It’s about as clear as mud.

As the old adage goes, uncertainty is the only certainty there is. For Joel Fleming, portfolio manager of the UBS Microcap fund at Yarra Capital Management, he has seen plenty of cycles come and go. "There's clearly an air pocket. People's decision making slows down. They are a little bit more wary about their spend."

Running a portfolio of one of the under-the-radar corners of the market, Fleming’s process is long-term and fundamentals driven, and that means resisting the temptation to rotate in and out of sectors based on whatever the macro is doing today.

In an environment where the narrative seems to be moving the needle daily, I spoke to Fleming about how he thinks about finding and holding quality growth.

What good growth actually looks like

In a universe of more than 500 companies, Fleming and his team conduct over 2,000 company meetings each year, gathering evidence that a business is building something that will still be standing in three to five years time. "It's about that sustainability" Fleming says. 

"What are you doing to fortify the business to make sure that you've got the cost base there that means that you can deliver on those revenues that come through?"

The inflection point he's watching for is when a stable cost base starts to leverage growing revenue. "Once you get to those inflection points where the cost base is reasonably stable and then it's starting to leverage that revenue, that's a really, really exciting time - but it's all about understanding, are you building something today that's going to be there in three and five years time and is it going to be bigger and better?"

In meetings, he's looking for management teams with an owner-operator mindset. "We look to meet with people who are thinking like owners. They're not chasing short term goals at the expense of the long term. They're aligned to build something that is scalable and sustainable."

Separating themes from hype

The microcap universe is full of companies attaching themselves to whatever narrative is hot. Within the inherently innovative microcap universe, Fleming emphasises the need to distinguish durable trends from hype by confirming real end-market demand and unique, resonant offerings.

"Is there a demand environment that exists? And then from there, is your offering unique? How are you going to stand out in that environment to ride these waves that occur all the time?"

He's watching electrification and AI, but cautiously. The fact that capital is flowing into a theme isn't enough on its own. He points to lithium as a reminder that markets can shift quickly - "15 years ago, people weren't talking about lithium, and yet it's now a really important part of the ASX."

What's in (and out) of the portfolio right now

Fleming describes the fund as low-turnover. When conditions shift, the team’s first move is to re-examine the original thesis. "When environments like this happen, we don't sell all our software companies and buy oil and gas companies because the price of oil's going up."

One recent exit is Alliance Aviation (ASX: AQZ). Despite looking optically cheap, the combination of fuel price volatility, cost inflation, and a difficult contract structure made the outlook harder to defend.

He's holding GR Engineering (ASX: GNG) and Beetaloo Energy (ASX: BTL), both long-term positions. "With the amount of work going on in the resources sector at the moment, GR's really well placed. They have a great reputation for delivery, and they're getting really busy."

Beetaloo Energy sits in an area attracting major investment, with energy security now firmly in focus. "That's an oil and gas play in a really interesting area where you're starting to have some majors invest, you're having a lot more discussion around the stability of our fuel supplies.”

His current standout is Energy One (ASX: EOL), a software business serving energy markets in Australia and Europe. As more renewables enter the grid, the complexity of managing energy flows increases. "As the grid continues to evolve, you need software to manage that complexity. It's a highly regulated market. They've got a really strong position here in Australia and in Europe they're expanding really nicely."

How risk is managed in practice

Liquidity is a real risk in the microcap landscape and for Fleming’s team risk management is about having diversification through the portfolio. Their strategy means there is no single holding above 5% of the portfolio, diversification across industries and business models, and a balance between profitable businesses and earlier-stage names that require ongoing funding.

The goal is to avoid having any single risk point dominate whether that's duration risk from rate moves, commodity price exposure, or a binary regulatory outcome.

"We don't want to be an all in bet on a singular theme," he says. 

"We want to have companies in different industries, different business models represented, hard assets, capital light - a really nice blend of companies that mean through the cycle we can manage our portfolio."

The outlook for the year ahead

Fleming argues that the breadth of the microcap universe means there's almost always something working, even when the macro is difficult.

Fleming points to uranium as a case study in how quickly market narratives can reverse. "Post-Fukushima, the uranium nuclear sector was finished, never to return. And yet under the current net zero and all of these issues around the supply…it’s come roaring back to life. That's one example of how markets change."

Even in tough macro conditions, scarce and sustainable growth doesn't stop being valuable, says Fleming. it becomes more valuable, because it gets harder to find.

"There's always opportunities out there. You’ve got to be a little bit nimble."

Discover microcap potential

Joel Fleming is the Portfolio Manager for the UBS Microcap Fund, a fund which he has managed since its inception in August 2014. The Fund aims to deliver superior returns and long-term capital growth by investing in undervalued, high quality micro-sized companies in their early stages of rapid growth.