Microcap Managers Continue to Outperform ETF’s

Mark Tobin

Coffee Microcaps

Q1FY19 was a challenging quarter for microcap managers but the majority of managers navigated the market well with the average manager posting a return of +2.6% for the quarter. This was in contrast to S&P/ASX All Ordinaries Accumulation Index which returned +1.9% for the period. The performance of large stocks and active managers is notable when contrasted to the S&P/ASX Emerging Companies Index which posted a return of -2.5% for Q1FY19.

Stand Out Manager Performances

Stand out performances from our active managers for the quarter came from microcap vehicles managed by Perpetual, Cromwell and DMX with Q1FY19 returns of 10.8%, 7.4% and 6.9% respectively, all easily outpacing the indexes 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 Q1FY19. Managers who struggled were Terra Capital, 8IP and Saville who all delivered relative and absolute negative returns for the quarter. Now, my usual caveat applies, no investor should judge a manager on single periods of short-term performance no matter how positive or negative the performance.

The table provided in the attached PDF gives the 3 month and 3 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. 

Stand out performers over a medium-term 3-year horizon continue to be Terra, Perpetual and Cromwell all posting annualised returns in excess of 20% and easily eclipsing the large or small cap indexes by a significant margin. It should also be noted that either on an average return basis or median return basis microcap managers have outperformed the indexes (large and small cap) and the associated ETF’s tracking these indexes. 

New Microcap Managers 

We have added in several new funds and managers since we are at the start of a new year. We hope to bring on a few more names throughout FY19. A quick introduction to all the new managers and their respective funds is provided below. Please visit their websites or make contact with the relevant manager directly if you are interested in learning more about their funds and associated investment philosophies and strategies.

Terra Capital is not a new manager per se to the list but we have added in their specialist natural resources fund which has a large weighting to microcap resources stocks. Given the success of the recent specialist natural resources LIC managed by Tribeca which listed in early October, readers may also be interested in reviewing the Terra Capital offering which has built a solid 8-year track record. 

EGP Capital or as may be known to some readers as Eternal Growth Partners is run by Tony Hanson. Tony has had great success in building the EGP Capital Concentrated Value fund up from its early private investment company days to transitioning into a managed fund/unit trust product last year. We have provided the returns of the fund since inception which spans both structures. One thing to note is that Tony does not charge a management fee in the fund instead he only charges a performance fee should he outperform the fund’s benchmark. As his slogan goes “If we don’t deliver, you don’t pay” 

Microequities again is not a new manager per se to the list but we have added in their two newer offerings. The Microequities Global Value fund as there are relatively few products on offer to Australian investors seeking exposure to global microcaps. We have also added their new Pure Microcap Value fund.

Supervised Investments currently has 80% of their portfolio in microcaps and runs a concentrated but diverse portfolio. They have a very solid long-term track record of delivering alpha to their investors over a 10+ year track record. If you are looking for a portfolio that won’t have a lot of crossover with any ASX index or most other managers for that matter than this could be worth reviewing.  

THB International is a US-based Small and Microcap fund manager who is distributing two of their funds in Australia via a partnership with Sydney based financial services firm Brookvine. The two funds they offer to wholesale investors are the THB International (Ex USA) Microcap Fund and the THB US Microcap Fund. Both offer exposure to international microcaps but in AUD. 

Saville Capital is another new addition and is run by Jonathan Saville. The fund has been running for nearly 2 years now and has displayed some good performance since inception. The fund focuses on stocks outside the ASX100 or the NZX20 where applicable but ideally, portfolio holdings will have a market cap of sub $500m on initial purchase. 

Monthly Microcap Managers Reviews

What started off as a once off review has turned in a quarterly review and now due to positive feedback from our readers we are going to be providing the review on a monthly basis going forward. We expect to publish the review on towards the end of every month moving forward once we had a chance to collate all the data. Many thanks for our reader's support. 

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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