Seneca's 3 underrated small caps for 2025

In this Fund in Focus, you'll learn where Seneca's Luke Laretive is finding out-of-love small-cap stocks on the ASX.
Sponsored
Ally Selby

Livewire Markets

Note: This interview was recorded on Wednesday 20 November 2024. 

Seneca's Luke Laretive has had an objectively good year. In his first 12 months of running the firm's new small-cap strategy, he's delivered his investors a return of 28.36% (an excess return over the Small Ords benchmark of nearly 10%). 

He attributes the strategy's outperformance over the last year to investing in, simply, well-run businesses led by real entrepreneurs - particularly those companies that have been undervalued or unappreciated by the market. 

Take companies with mispriced assets, for example, or scarce commodity plays, stocks with inflecting profitability or growth companies that have been undervalued by the market. 

"I think that entrepreneurial lens gives us a unique angle when we are looking at companies, relative to someone who is a salaried, institutionalised fund manager out there," Laretive says. 

"You are actually running a business at the same time as investing in other people's businesses. So, that entrepreneurial approach does tilt how we invest, the kinds of companies we like to buy and the characteristics we like to see in management teams." 

There are 36 stocks in the portfolio right now - all of which, Laretive argues, are high-conviction ideas. "That's why they are in the portfolio," he says. 

Take Pointsbet (ASX: PBH), for example, a business with "clear takeover appeal" and inflecting profitability. This is a business that has recently been overlooked by the funds management community and labelled as a "cash burner", Laretive says. However, given its recently returned capital to shareholders and sold off its US assets, that narrative has now changed. 

Similarly, Catapult Group (ASX: CAT) has historically been considered a cash-burning business, but there is now a clear line of sight to profitability and the business has a dominant market position. Even Megaport (ASX: MP1), a company that has fallen out of favour with the market, is looking attractive. 

"This is a stock that you were once buying on 25 times EV/sales that you are now buying on five times EV/sales," Laretive says. 

In this Fund in Focus, Laretive takes investors through his outlook for small caps in 2025, how he thinks about investing, as well as a crowded small cap that he would be taking profits on. 

Livewire's Ally Selby and Seneca Financial Solutions' Luke Laretive 
Livewire's Ally Selby and Seneca Financial Solutions' Luke Laretive 

Timecodes 

  • 0:00 - Intro 
  • 0:24 - Why Seneca launched a small-cap fund 
  • 0:57 - What went right over the last 12 months 
  • 1:52 - What went wrong 
  • 2:49 - Lessons: Don't be discouraged by the calls you get wrong 
  • 3:35 - Point of difference - entrepreneurial spirit 
  • 4:38 - How Seneca approaches risk management
  • 5:28 - The opportunity in small-cap stocks 
  • 6:09 - The factors that are important for small-cap investing 
  • 7:33 - Why Seneca wants to cap FUM for its small-cap fund 
  • 8:21 - Management and performance fees - a unique model 
  • 9:00 - Outlook on small caps for the next 12 months 
  • 10:20 - Three high-conviction ideas 
  • 11:44 - A stock that has gotten too hot 
  • 12:32 - How investors can access this opportunity

If you’d like to book a free, 1-on-1 consultation with Luke to discuss your specific portfolio, you can book a time in his calendar here.

........
Livewire gives readers access to information and educational content provided by financial services professionals and companies (“Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

4 stocks mentioned

1 contributor mentioned

Ally Selby
Deputy Managing Editor
Livewire Markets

Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.

Comments

Sign In or Join Free to comment
Elf Footer