Datt Capital to optimise opportunities in Australian small cap sector with a new fund
Emanuel Datt
Datt Capital, a boutique Australian equity investment manager, has a small cap fund on the drawing boards, believing the market timing is opportune to uncover alpha in this market sector.
Emanuel Datt, chief investment officer, Datt Capital says: “Listed small caps were sold down heavily in calendar 2022, falling more than 20 per cent. So, we believe there now are good opportunities to acquire sustainable businesses across various industry sectors where the upside potential far outweighs the downside risk.
“Many of these small caps, which offer investors access to earlier-stage, higher-growth businesses, are currently trading on single-digit earnings multiples, and, as such, present a compelling investment story.
“It is significant that the Future Fund has publicly declared it is increasing its exposure to small-caps exposure via active managers.”
He says that although small-cap investments inherently carry more significant risks than large-cap stocks, academic research supports the idea of a small-cap premium offering outsized alpha. “The small-cap market is often less efficient than its large-cap counterpart, providing a higher probability of uncovering alpha due to limited analyst and investor attention.”
Datt notes that in an environment of low interest rates and quantitative easing, index-based investment strategies held sway. “But 2022 once again demonstrated the value of active managers with the market turbulence exposing the need for investor experience instead of relying on market beta.
“In this investment environment, active investment managers come to the fore by making decisions based on fundamental analysis, aiming to add value by identifying undervalued or overvalued securities. This approach emphasises the importance of investor skill and the opportunities presented by market volatility and varied returns.”
He says that the small cap fund, which will target early-stage investors, will build on the demonstrable active fund management gleaned over the past five year track record set by the Datt Capital Absolute Return Fund.
“To maximise the chances of capturing alpha, we consider diversification, risk management, trading costs, the benefits of active management, research and monitoring.“Diversification applies various investment strategies, including value, growth, momentum, and quality-based approaches. It also continually evaluates the market to identify promising growth sectors or those facing challenges. Risk management ensures an awareness of stocks with higher volatility, lower liquidity, and greater delisting probability.
“We place a premium on reducing trading costs, adopt an active management approach to exploit mispricing opportunities, while our research and monitoring ensures we remain informed about industry trends, market developments, and individual company performance,” Datt says.
The new Fund is slated to be launched in July this year.
