3 ways this small cap fund aims to stand out from a crowded field
- Name of the fund: Tyndall Australian Small Companies Fund
- Asset Class: ASX-listed small caps
- Inception: March 2023
- Description of strategy: The Australian Small Companies Fund invests in a diversified portfolio of Australian small cap companies that are undervalued with the aim to deliver consistent risk-adjusted returns and strong capital growth
- Investment objective: The Fund aims to outperform the S&P/ASX Small Ordinaries Accumulation Index (Benchmark) over the long term before fees, expenses and taxes
- Link to fund page here
Let's face it - no investment comes without risk and responsible investing, in many ways, is a balancing act. How much risk are you willing to take on for a potential reward? In the small caps end of the market, that adage is particularly true. Small-cap stocks are generally more indebted, prone to raising capital (sometimes addicted), and are affected far more during an economic shock than larger, more mature firms.
And while it is true that you could get extremely lucky and find Pro Medicus (ASX: PME) when it was $4/share (a real win from my colleague Chris Conway's trading days incidentally), finding those on your own is like finding needles in a haystack.
Enter James Nguyen, Senior Analyst and Co-Portfolio Manager of the Tyndall Australian Small Companies Fund at Tyndall Asset Management. James, along with his colleague Tim Johnston and a strong in-house research operation, run one of the newest small-caps funds in the market. The fund aims to find quality companies that are growing earnings but are also mispriced by the market.
Their process to achieve this is one Nguyen is keen to emphasise:
"The portfolio has a return on equity that is 20% higher than the small-cap benchmark, the earnings growth is 10% higher than the small-cap index, and the portfolio in aggregate trades at 2 P/E points lower than the benchmark, indicating it's cheaper than the benchmark," he said in a recent interview.
And in a market where the small cap-large cap divergence is tightening, that mispricing is now more interesting than ever. So much so that Nguyen describes it as the most exciting investment theme happening today.
"Since August 2021, when interest rates started going up, small caps have underperformed their large-cap counterparts by 25%. But to me, that's not probably warranted in the environment we are experiencing right now and earnings growth is coming through," Nguyen argued.
Nguyen adds that small-cap forward earnings growth estimates could be as much as 20% in the next two years, compared to large caps where that figure is 10%.
In this Fund in Focus, Nguyen illuminates us on the Tyndall AM approach to investing in small caps, two of their high conviction holdings - Webjet (ASX: WEB) and Qualitas (ASX: QAL) - and the benefits of a large stock holding range to its mandate.
The small cap that identifies long-term winners
The Tyndall Australian Small Companies Fund invests in a diversified portfolio of Australian small cap companies that are undervalued with the aim to deliver consistent risk-adjusted returns and strong capital growth. Find out more below or by visiting their website.
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