BetaShares launches Australian Small Companies Select Fund

From

Alex Vynokur

BetaShares has announced the launch of the Australian Small Companies Select Fund (managed fund) (ASX: SMLL), a competitively priced fund that seeks to provide investors with capital growth and income from a select portfolio of high quality, profitable Australian small companies, and which aims to outperform the S&P/ASX Small Ordinaries benchmark.

In developing SMLL, BetaShares conducted rigorous research and extensive testing in-house in order to formulate a tailor-made investment strategy specifically designed for the particular characteristics of the Australian small-cap market.

“Due to the top-heavy nature of the Australian equity market, investors often seek exposure to small-cap stocks for their return potential and diversification. However, prior to SMLL, investors seeking exposure through passive vehicles have been poorly served as these indices have historically not provided extra return for the added risk,” said BetaShares managing director Alex Vynokur.

“At the same time, traditional actively managed offerings come with a significant price tag, which can materially diminish returns to investors.”

The Fund’s portfolio is constructed using a series of screens that aim to identify companies with positive earnings and a strong ability to service debt. Relative valuation metrics and price momentum are also evaluated as part of the stock selection process. In addition, liquidity is taken into account with a view to selecting stocks that are more liquid relative to other small companies.

The Fund will typically hold 50-100 stocks, drawn from a universe of ASX-listed stocks outside the 100 largest companies, but generally within the 350 largest companies by market capitalisation.

SMLL breaks new ground, as the fund’s competitive fee structure strongly aligns the interests of the manager with the outcome for investors. While the average investment fee charged by small cap managers in Australia is around 1.8% p.a. , BetaShares’ SMLL will only cost 0.39% p.a., not including performance fees.2

“As the S&P/ASX Small Ordinaries Index contains many unprofitable, speculative and illiquid stocks, which tend to perform poorly over time and cause a drag on index returns, Australian small caps is one of the few sectors where most active managers have been able to deliver alpha over the long term,” explained Mr Vynokur.

“SMLL applies a rigorous investment approach that removes this design problem from the equation. With SMLL, investors can now access the growth potential of the dynamic small cap sector without paying high active management fees.”

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