Microcap Fund Review FY18

Mark Tobin

Coffee Microcaps

FY18 was a strong year for both microcap and small caps indexes. Once again, microcaps significantly outperformed large caps. The S&P/ASX All Ordinaries Accumulation Index returned 13.7% for FY18 a healthy return. In contrast, the S&P/ASX Emerging Companies Index posted a stellar return of 23.2% for FY18. Leading to an outperformance of 9.5% for microcaps over large caps and the majority of ETF’s which track large-cap indexes in the Australian market. 

Stand Out Manager Performances

Stand out performances from active managers for the year came from microcap vehicles managed by Perennial, Eley Griffiths and Acorn with FY18 returns of 50.2%, 41.9% and 30.6% respectively, all easily outpacing the index and their own selected benchmarks. Given these results are net of all fees it makes them even more impressive given the index has no fees associated with its performance. 

However, as always there are the managers which lagged both the index and their peers for FY18. Managers who struggled in FY18 were 8IP, Microequities and DMX who all delivered low single-digit returns. Now, my usual caveat applies, no investor should judge a manager on a single year’s performance no matter how positive or negative the performance was. 

The table provided in the attached PDF gives the 1, 3, 5 and 10-year returns for fund managers who have such track records. This gives investors some perspective on the longer-term performance record of all managers. It also shows returns for the indexes over similar timeframes. 

Microcap outperformance versus large caps and ETF’s 

Over a medium-term time horizon or longer, active microcap managers, by and large, have an excellent track record of delivering alpha to their investors as can be seen from the data. In addition, they have delivered superior returns versus that of the mainstream index funds and ETF’s.

This is continuing evidence that active microcap managers can provide attractive relative and absolute returns to investors. The data also suggests that despite an increase in the number of microcap focused vehicles that have come to market in the last 3 years microcap managers as a group have been able to provide continued strong performance. 

Stand out performers over a medium-term 3-year horizon continue to be Cyan, Perpetual and Cromwell all posting annualised returns in excess of 20%. 

1 stock mentioned

Mark Tobin
Coffee Microcaps

I focus on ASX listed microcap and nanocap​ stocks which is​ anything from $10mil to $300mil market cap and everything​ in between. This truly​ is the under-researched​ part of the ASX. My hope is to bring you interesting microcap stocks and news.

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