The DNR Capital Australian Emerging Companies Fund[1] has been upgraded to a ‘Recommended’ rating from leading ratings house Zenith Investment Partners, which says the Fund “is well placed to deliver on its investment objectives.”
The Fund offers investors a concentrated exposure to high quality listed Australian small companies, reporting returns of 15.41% p.a.2 since its inception in August 2018, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 9.50%p.a.[2]
DNR Capital’s investment philosophy is based on the premise that markets are inefficient and short-term focused, which gives rise to potential outperformance over the medium to long term. DNR Capital seeks to invest in quality companies at attractive valuations.
Zenith says it has “a favourable view” of DNR Capital’s investment process. “In addition, we draw confidence from the strategy’s strong positive asset growth, which ensures greater stability within DNR’s smaller companies business unit,” it says.
Sam Twidale, Portfolio Manager for the DNR Capital Australian Emerging Companies Fund says: “The Australian small cap sector is a particularly inefficient part of the market, providing significant opportunities to add value from applying a consistent and proven investment process. We believe our quality discipline is proving to be more relevant to this part of the market.”
DNR Capital defines “quality” companies as those with earnings strength and improving returns, superior industry positions, sound balance sheets, strong management and low ESG risk.
Zenith says: “Since DNR Capital’s investment philosophy and process have been applied to the smaller companies segment of the market, impressive results have been achieved.”
Overall, Zenith believes “that DNR’s portfolio construction process ensures that the Fund has a bias towards high quality companies. We believe the Fund is well placed to deliver on its investment objectives.”
The Fund takes a concentrated approach, investing in between 20 and 45 stocks. Its investable universe is the ASX Small Ordinaries Accumulation Index. It has an active share greater than 75 per cent – a measure of active management that tracks the extent to which the Fund varies from the composition of its benchmark index.
DNR Capital backs quality companies because it believes they can successfully reinvest capital and achieve pricing power that allows them to grow above inflation. Additionally, these companies have strong balance sheets that allow them to ride out cycles, along with providing strategic optionality.
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