Topsy-turvy market providing small caps investing opportunities - and risks

An unusually ‘topsy-turvy’ period for small caps stocks is providing alpha opportunities if investors can look through the hype and the volatility, according to a leading small caps fund manager.

Richard Ivers, portfolio manager of the table-topping Prime Value Emerging Opportunities Fund, part of boutique investment house Prime Value Asset Management, says small caps can add alpha during the COVID-19 recession recovery. “The market’s in flux, which provides significant opportunity to outperform and small caps provide a large variety of opportunities with over 2,000 listed companies.

“Many small caps stocks seem ‘topsy-turvy’. Stocks which did well during the lockdowns are now suffering, and stocks which were smashed are rallying.

“The key to generating strong returns will be looking out 12 – 18 months to determine where a company will be positioned on the other side of the coming recovery.

“There’s huge potential to add alpha to returns by picking the eyes out of these market fluctuations, while being careful about chasing speculative hot stocks or short-term trends.

“We can participate in the post-COVID-19 rebound without taking unnecessary risk.”

Mr Ivers said Prime Value is not taking big bets either side of the COVID-19 recovery. “We always focus on the solid performers, which show more resilience through the cycle and have proven resilient through the COVID-19 recession.”

He said while the Australian share index looked quite stable on the surface, there is huge volatility ‘below the surface’. “These markets are ideal for experienced stock pickers where extreme share price movements create fantastic buying and selling opportunities. Having a deep understanding of a large range of companies allows us to take advantage of this market.

“We don’t try to pick the direction of markets but things are very well positioned for equities with a global economic rebound expected through 2021, combined with ultra-low interest rates. This combination is rare and we are seeing some truly fantastic buying opportunities.

“Our investment style has delivered very high investment returns while avoiding the more speculative areas.”  

The Prime Value Emerging Opportunities Fund topped the Mercer Australian Small Companies (ex-ASX100) survey, for the year to 30 June 2020 (source: MercerInsight®). The Fund is currently ranked number two of approximately 300 funds by Morningstar for performance over one year and five year time periods, delivering 20.1% for the year to 30 November 2020 (after fees).

The Prime Value Emerging Opportunities Fund is currently open to retail investors.

Boutique manager Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing approximately $2 billion across equities, income securities, direct property and alternative assets investments.