Markets

Small cap investing has considerable upside, which the long-term returns data shows. But many small caps are less than quality grade, and the managers picking them can be rife with bias.

Shifting market dynamics mean some of the investment themes that worked in recent years are set to give way to new opportunities. Man Group’s Andrew Swan and Prime Value’s Richard Ivers recently discussed the promising outlook for Asia and small-cap stocks, where it’s all about fundamentals.

Valuing companies and their potential for growth is a slippery, convoluted process. Quality is a key metric, according to Loomis Sayles, but other factors play an equal role.

With some real asset trading at 20 to 30 per cent below their fundamental value, HMC’s David Di Pilla says there are “compelling” opportunities for managers that can spot value and raise capital.

Dividend investing can be a good source of defensive income in volatile times, but changing fundamentals mean resources companies and banks may be the weaker play in 2023, with opportunities emerging beyond these traditional Australian dividend payers – although valuation will be key.

At The Inside Network’s Alternatives Symposium, Kyle McCarthy and David Lewis encouraged investors to define private credit very broadly to reap the benefits of diversification and strong risk-adjusted returns.

The US Federal Reserve may have guaranteed deposits at the failed bank, but its collapse constitutes a major scare for venture capital outfits and private equity purveyors with outsized technology exposure.

What worries Harry Sugiarto most about the current investment environment is the possibility that he doesn’t get a chance to fully exploit the opportunity it presents.

Many supply chain issues have been alleviated in the last year as restrictions eased in the wake of the pandemic, said Alceon’s Phil Green, but labour remains a sticking point.

While greenhouse emissions and diversity remain key issues, the spate of cyber breaches seen in 2022 has made cyber security the number one ESG issue.

With private equity becoming more accessible, retail investors can now take advantage of the asymmetry-of-information and diversification benefits PE offers, while its safe-haven characteristics stand out in the uncertain macro environment, according to David Chan and Cameron Brownjohn.

The amount of capital being made available to private companies has surged in recent decades, making it possible, and often preferable, to keep companies private for much longer. Liberty Street Advisors’ Christian Munafo and Schroders’ Claire Smith discussed the opportunities and risks for investors as the private-for-longer trend picks up pace.