We take our monthly look at the returns of Australian Microcap Funds. The majority of funds endured double-digit and drawdowns in the Dec 18 quarter. This large drawdown in the last quarter also pulled the majority of the funds negative for the calendar year.
The S&P/ASX Emerging Companies Index was within a bear's whisker of entering bear market territory for the calendar year with the index down 19.94% in 2018.
ASX listed equities both large and small posted negative returns in 2018 along with the majority of their international peers. Indeed it was hard to find any asset classes equities, bonds property either in AUD or USD terms that were in the "green" in 2018, even cash struggled once you factored in inflation!
Let's hope for a better 2019.
Some Points To Note
Some data points for particular time periods may reflect as "N/A" or there is no data at all displayed for the following two reasons;
1. Some funds have not reported performance figures via their newsletters or website by the 15th of the following which is our deadline for inclusion in this report. Even though all funds are daily dealing I might add.
2. Some funds do not report performance figures for that particular time period in their performance reporting.
I would advise readers to contact the relevant fund themselves should they wish to obtain the relevant data.
Stan Tan
Nearly all the small cap funds except Macquarie are down in the 1-year time frame. Don't you think small caps shouldn't be correlated to the SP500 or ASX200? I also took a look at the first fund in the list, Ausbil Microcap and they have Smart Group (1.2b mc) and Nearmap (800m mc). Those are hardly small or micro caps. If they bought both those companies when they were small caps, their returns wouldn't be underperforming the benchmark looking at the 7-year timeframe. It makes you question whether these funds are truly 100% small or microcap.
Michael Whelan
Stan - good comments, including ‘style’ and ‘exposure’ drift over time. In regard to Nearmap, it would have been a small cap 12 months ago but maybe not now so much. Don’t know enough about SIQ but at $1.2bio you’d think it shouldn’t be there now as a ‘microcap’.
Mark Tobin
Hi Stan I don't think they should have perfect negative correlation but the returns should differ significantly to those broader indexes which is what happened in 2018. Microcaps are still equities so they will have some correlation with the overall asset class. Also as we saw in the GFC in times of great investor stress all asset classes started to become more correlated with each other. I take your point on the Ausbil holdings but there is no hard and fast rule between managers as to what they constitute as a microcap stock. Some like Ausbil is mainly shares outside the top 200, others it's the top 300, others its anything under the $500m market cap. Some mix a bit small cap and microcap into the one fund but may name it a microcap fund. My own personal view is anything that under the $300m market cap. Hope that gives you some context on the funds I have included.
Tarlock Kudhail
Hello Mark What do you think about the new retail offering of High Income Value Fund by Microequities? Thanks Tarlock
Mark Tobin
Hi Tarluck I don't have a view as they are merely opening an existing fund to retail instead of previously restricting it to wholesale investors only. So it is not a new product offering but a different share class. Having a long track record does though provide some good information for retail investors to review with their financial advisor as to the suitability of the retail share class for that particular investor.