Small caps continue to lag other sectors of the equities market, creating the ideal conditions to add value, according to Richard Ivers, Portfolio Manager at Prime Value Asset Management, which manages the outperforming Prime Value Emerging Opportunities Fund.
He said: “There are strong opportunities for small cap investors to capitalise on the disparity between smaller companies and the rest of the market
“This has been reinforced by the Future Fund, which recently announced it will invest in small cap stocks for the first time.
“The natural volatility in the sector and the reduced coverage by stockbrokers create the conditions for active managers to show their wares.”
Mr Ivers said small cap stocks exhibited typical volatility over the last financial year with the median small cap company having traded in a share price range of more than 50% during this time. “The share price of the median company in the Small Ordinaries index is trading 22% below its 52‐week high, while also trading 29% above its 52‐week low.
“This volatility provides access to quality stocks at better prices, and is why small cap stocks offer some of the best opportunities for managers to add value as compared to the indices.”
Ivers said actively managing volatility can drive eventual outperformance in small cap portfolios. “It’s possible to achieve relatively consistent returns by using this volatility in our favour.
“Key is the entry price of an investment. Buying in at the right price is a key component of the returns ultimately generated, and we have seen many quality companies suddenly become available at more attractive prices.
“This is assuming investments are made with capital protection in mind, in companies with good management, strong cash flows, a good balance sheet and no issues with debt.”
He said small cap industrials experienced the biggest drawdowns in recent times, which has created some strong buying opportunities in the sub-sector.
The Prime Value Emerging Opportunities Fund returned 13.68% to investors after fees for the year to 30 June 2023, and has delivered 11.2% after fees per annum to investors since inception in 2015. Mr Ivers is part of the team which was winner of the Australian Equities – Small Cap Award at the Zenith Fund Awards in late 2022.
Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing over $3 billion in equities, income securities, direct property and alternative assets.
To invest in the Prime Value Emerging Opportunities Fund please contact our Client Services Team at info@primevalue.com.au and 61 3 9098 8088
Source: Adviser Voice