Australian small caps at an inflection point

A strong reporting season for many parts of the Australian small cap sector reinforces our belief that the Australian small caps market is at an inflection point given the more favourable macro-economic backdrop and expected earnings trajectory. With a lot of negative sentiment ‘priced in’ to Australian small companies, and signs of easing financial conditions, moderating inflation and peaking interest rates, we believe calendar 2024 should be one of the most favourable environments for the Australian small cap sector's outperformance since the GFC.

Importantly, we believe the domestic small cap landscape has evolved significantly over the past 15 years, as the Benchmark (S&P/ASX Small Ordinaries Total Return Index) is now comprised of higher quality stocks. In our view there are now far more small cap stocks with positive earnings, strong balance sheets and Return on Equity has steadily increased over time. These factors help support the case for a persistent small cap premium on the ASX (similar to most other global exchanges), as compared to a historic discount.

History shows small companies are often one of the first parts of the market to recover as economies come through weaker times. This phenomenon was on display both domestically and in the US in the latter part of 2023.

In this environment, selecting the right small cap manager is as important as the decision to allocate to the sector.

About the Maple-Brown Abbott Australian Small Companies Fund

The Australian small cap manager with large institutional backing is now available to advisers.

The Maple-Brown Abbott Australian Small Companies Fund (the Fund) is managed by our experienced Australian small companies team, led by Co-Portfolio Managers Phillip Hudak and Matt Griffin. The Fund continues to generate what we consider to be strong returns since inception (24 June 2022), returning 19.3%, outperforming the benchmark S&P/ASX Small Ordinaries Total Return Index by 10.3% on an annualised basis. This follows on from the strategy’s strong performance over nine years at AMP Capital*, where the same ‘earnings drive share prices’ philosophy and investment process was applied. 

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Our investment philosophy

Rather than defining ourselves by a particular investment style, our investment philosophy is based on our belief that earnings drive share prices. Our three core beliefs underpinning the philosophy are:

  1. share price performance is driven by medium-term earnings delivery with consideration given to valuation and where the company is in the earnings cycle;
  2. sustainable business models, which include a company’s persistence of earnings over longer time periods, are an important driver of long-term performance and superior risk-reward characteristics; and
  3. companies which disappoint on short-term earnings expectations typically underperform.

By taking time to understand where a company is in the earnings cycle, we can determine the price paid for the future earnings stream. Given the breadth of the Australian small cap market, we believe we can find undervalued companies where we have conviction in medium-term earnings delivery at any point of the market cycle.

A team of experienced and dedicated investment professionals.

Phillip Hudak | Co-Portfolio Manager, Australian Small Companies | Maple-Brown Abbott
Phillip Hudak
Co-Portfolio Manager, Australian Small Companies
Matt Griffin | Co-Portfolio Manager, Australian Small Companies | Maple-Brown Abbott
Matt Griffin
Co-Portfolio Manager, Australian Small Companies
William Hanna | Investment Analyst, Australian Small Companies | Maple-Brown Abbott
William Hanna
Investment Analyst, Australian Small Companies
Ayesha Azeem | ESG Investment Analyst | Maple-Brown Abbott
Ayesha Azeem
ESG Investment Analyst

Contact us

Vijay Srinivasan
Head of Wholesale Distribution

T +61 2 8226 6238
M +61 403 046 832

Alternatively, contact

* The past performance and experience of the portfolio managers was achieved managing a different fund with substantially the same investment strategy as the Fund. Past performance is not a reliable indicator of future performance.

This information was prepared and issued by Maple-Brown Abbott Ltd ABN 73 001 208 564, Australian Financial Service Licence No. 237296 (“MBA”). This information does not constitute investment advice or an investment recommendation of any kind and should not be relied upon as such. This information is general information only and it does not have regard to any person’s investment objectives, financial situation or needs. Before making any investment decision, you should seek independent investment, legal, tax, accounting or other professional advice as appropriate, and obtain the relevant Product.

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