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‘The market is efficient, but it has no imagination’ – Ausbil


Global small-caps consistently outperform their large-cap brethren – and do it with a better risk-adjusted return – but few investors are paying attention, according to Ausbil portfolio manager Tobias Bucks.

“Global small-caps outperform global mid-and large caps. Like all maths, it’s boring but it’s true,”
Mr Bucks told the Inside Network’s Equities and Growth Symposium on Wednesday, adding that they are also untethered from the news cycle that can determine the fortunes of their large-cap counterparts.

“What drives the share price is about what the board and management is doing with its employees, its services, and its assets. It’s not about what the Fed is saying with its tapering. It’s not about what Trump is Tweeting,” Mr Bucks said. “A really simple takeaway is if you add any exposure of your clients to global small caps in their existing equity portfolio, according to the scientists and the actuaries, you will improve their risk adjusted return.”

The Ausbil Global Small Cap Fund’s “Graduate Program” – those small-caps that have now been bought up by mid- and large-cap managers – includes stocks like Generac, a “niche leader” in power generation which is now pushing into emerging markets, and global tech company The Trade Desk, which went from a A$4 billion market cap to A$40 billion in two years.

“When we sold it, a well-known broker had just initiated on it, and I think that says a lot about the way the industry is going at the moment. The analysts don’t cover the stocks…people aren’t looking at what they’re buying, they aren’t looking what the management is actually saying,” Mr Bucks said.

The fund’s up and comers also include InMode, a pioneer in non-invasive aesthetic surgery, and Atkore, an “emerging global titan” in metal stamping and cable management. Two things are required to be a successful small-cap manager, Mr Bucks says: keeping your eyes peeled for attractive valuations and going against the consensus.

“We’re a growth manager, but we masquerade as a value manager. That’s the contrarian aspect, and that’s how we deliver the alpha in small caps….it’s not about value and growth. We’ll give you value and growth by going against consensus.”

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