Microcap Fund Manager Review April 2019

By Mark Tobin | More Articles by Mark Tobin

We take our monthly look at the returns of Australian Microcap Funds. The majority of microcap funds continued their good start to 2019 and the majority of managers have recovered the lion’s share of the losses suffered in the final quarter of 2018.

The large drawdown in the last quarter of 2018 had pulled the majority of the funds negative on a 1-year basis over recent months however this is starting to reverse now in most cases as the strong start to 2019 is being more fully reflected in the numbers.

The S&P/ASX Emerging Companies Index was within a bear’s whisker of entering bear market territory for the calendar year 2018 with the index down 19.94% in 2018, but it was up a healthy 4.8% in April 2019 and up a total of 17.1% calendar year to date. Outpacing the performance of large cap indexes but still marginally trailing the S&P/ASX Small Ordinaries Index. However, over longer time periods microcaps are still under performing both small and large cap indexes.

Winners & Losers

The standout performer by a country mile for April 2019 was the Lennox Australian Microcap Fund which was up 10.3% for the month. A double digit return at time is something we don’t see too often in our review so it deserves a special piece of recognition.

Some funds who didn’t quiet fair as well were Naos and Forager both of whom are experiencing a period of underperformance but their longer track record should be taken into consideration given how well these managers have done in the past.

Now, the usual caveat applies here in that looking at a single month performance figures in isolation a hard and fast metric to evaluate a fund managers performance either on the positive or negative side.

One needs to look at each managers longer-term track record and indeed be cognizant of the strategy being employed by the manager given the current market dynamics. For example, a value strategy versus a growth strategy or the market’s appetite for large cap stocks over microcap stocks as both these themes wax and wane over time but an adept fund manager should demonstrate alpha over a full market cycle.

Thus the accompanying table gives some more context to how various fund managers have performed over longer time periods.

The other notable news is that the 8IP Emerging Companies LIC (ASX:8EC) intends to liquidate its portfolio and return the proceeds to shareholders. It is however still fending of a takeover bid from the Aurora Dividend Income Trust which is not supported by the LIC’s board who rather favour the sale and windup strategy. The windup was not a huge surprise give the sub scale nature of the LIC (under $100m market capitalisation) and the abysmal performance of the fund since inception when either compared to peers or any relevant benchmark. This led to the LIC to continually trade at a discount to its stated NTA.

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 month 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.

Mark Tobin

About Mark Tobin

Mark Tobin is a Senior Analyst at Independent Investment Research. Mark's focus is 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.

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