Emanuel Datt

Datt Capital, a boutique Australian equity investment manager, is using its learnings from its successful absolute return fund to launch a new fund in the small cap space.

“As part of our process of managing the Datt Capital Absolute Return Fund we have been able to identify a number of investment prospects in the small company space and we believe an unconstrained small cap fund will perform well relative to the index,” Emanuel Datt, chief investment officer of Datt Capital said.

“This is particularly appropriate in the current market, given our expectations for small caps to outperform due to their attractive valuations,” Datt added.

The Datt Capital Small Companies fund has a minimum investment of $50,000, making it particularly appropriate for self-managed superannuation fund (SMSF) trustees looking to obtain exposure to this attractive market sector.

“We believe this new fund will fill a sizeable niche for investors looking to take advantage of much of the latent value opportunities within the small company sector. The Future Fund, Australia’s largest institutional investor, has recently allocated capital to active small cap managers providing demonstrable appetite and institutional recognition of the present alpha on offer within the Australian small cap space,” Datt said.

Datt Capital has demonstrated a strong track record of small cap stock picking as a subset of its Absolute Return strategy over the last five years and believes a specialist small cap strategy to discover and invest in the ‘Blue Chips of Tomorrow’ will provide strong outcomes to investors over time.

On a five-year rolling timeframe, the small cap index (XSO) is currently trading at a material divergence from the broader market index (XJO) in terms of valuation. Datt points out that when this has occurred in the past, it has preceded periods of strong returns by small cap funds.

“The end of zero interest rate policy and the end of the dominance of private market capital presents a smorgasbord of small cap opportunities which are mispriced relative to large cap peers,” Datt said.

“Historically small caps have been less efficient than large caps which, while carrying more risks, also provide more opportunity to uncover alpha, especially as these stocks are under researched or entirely ignored by analysts,” he said.

The fund will invest in Australian listed companies outside the S&P/ASX100 index and pre-IPO equities in a limited manner. It will target companies with the potential for long-term capital growth, with an emphasis on quality small company investment exposures.

The fund will take a concentrated approach with the Fund holding between 15 to 25 long equity positions at any given time.

Datt Capital’s investment approach focuses on finding companies with strategic value where it may be able to use ‘collaborative activism’ techniques to realise alpha and companies run by focused, prudent and experienced management teams.

The investment team will also look out for companies with strong or improving balance sheets, trading at discounts to net asset value or replacement value, and cyclical companies showing upside leverage to the cycle.

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