Sam Twindale
Momentum continues to build in the small-cap sector, with recent performance and reporting season results pointing to renewed investor confidence and attractive opportunities across several sectors, according to DNR Capital Portfolio Manager Sam Twidale.
“The standout story in recent months has been the strength of small caps,” said Twidale. “We’ve seen some excellent bottom-up opportunities emerging, with the Small Ordinaries Index up over 8%, significantly outperforming the large-cap index.”
Twidale noted that investor focus is returning to the small-cap space, with structural growth companies delivering particularly strong results.
“Businesses like Zip and Life360 have been standout performers. Zip has shown continued strength, particularly in the US market, where buy-now-pay-later penetration remains relatively low compared to Australia. The company is growing profitably, supported by a strong balance sheet and disciplined management,” he said.
“Life360 has also continued its strong momentum, growing revenue by over 35%. The company is building an entrenched position in the family tracking and location-sharing market, demonstrating both strong revenue and earnings growth with a long runway ahead.”
Twidale noted the resilience of consumer-facing businesses as one of the key takeaways from the latest reporting season.
“There was a lot of concern heading into reporting season about how consumer companies would fare given macroeconomic headwinds,” he said. “However, what we saw was much greater resilience than expected. Many businesses continue to perform solidly despite the broader economic uncertainty.”
While gold has dominated headlines, Twidale pointed out that several industrial commodities are now presenting value opportunities after an extended downturn.
“We’ve been through a challenging bear market in commodities like lithium, coal, and iron ore,” he said. “Lithium prices, for example, are down around 90% from their peak. But we’re now seeing signs that we’re near the bottom of the cycle.”
“Demand for lithium remains strong with electric vehicle growth remaining strong and stationary storage demand increasing. With prices so low that many producers are loss-making, supply discipline is beginning to emerge, particularly in China. That sets the stage for potential recovery.”
DNR Capital has been repositioning its portfolios to take advantage of these dynamics.
“We’ve been active in recent months, building positions in quality, low-cost, long-life mining producers,” said Twidale. “We’re now overweight the mining sector, which supported our performance through the recent month.”
“Overall, the small-cap space remains full of opportunity. There’s volatility, yes, but also strong potential for alpha generation. We continue to favour quality businesses across technology, financials, consumer, and now selectively within mining.”
“The underperformance gap between small and large caps is beginning to close, and as we move beyond current reporting season, we expect continued interest and momentum in this space.”
DNR Capital Australian Emerging Companies Fund offers investors exposure to a concentrated portfolio of high quality, small cap Australian listed equities. In 2024 the Fund received a “Highly Recommended” rating from Lonsec Research and a “Highly Recommended” rating from Zenith Investment Partners.
