Look beyond indices for small cap opportunities in high inflation, higher rates climate
Richard Ivers
The case for looking beyond the small cap indices for investment opportunities has strengthened following the return of inflation and interest rate rises, according to a small and micro-cap companies investing expert.
Challenging environments often provide a foundation for small cap outperformance given active management is more influential on smaller companies investing, said Richard Ivers, Portfolio Manager for the Prime Value Emerging Opportunities Fund and Prime Value Microcap Fund. “The Small Industrials Index experienced a surprisingly sharp fall in the last few months and is now only +6% in the last six years since the onset of Covid, which equates to 1% per annum. This is despite solid earnings growth over the period.
“Unsurprisingly, there are now many quality smaller companies with resilient earnings which now look more attractive over the medium-to-long-term.
“There are plenty of small and micro-cap companies with relatively reliable earnings well into the foreseeable future, such as those tied to critical infrastructure, which appear more attractive during times of volatility.
“And while this short-term volatility creates some discomfort, it can provide the grounds for future outperformance by providing access to quality companies on sale.”
Ivers said infrastructure assets operating as monopolies with long duration earnings streams looked particularly attractive during economic and geopolitical uncertainty. “These companies include Auckland Airport and Napier Port, with earnings that stretch well beyond shorter term interest rate and oil price rises, and have sold off in recent weeks.
“In addition, there are many small cap companies benefiting from strong structural tailwinds supporting longer term growth – companies such as Regis Healthcare and Pinnacle Investment have a strong long term earnings growth outlook. Both are high quality businesses and down over 30% from recent highs.
“We believe it’s important to focus beyond the short term, and we are more optimistic on the longer term with these companies.
“It’s uncertain when the market will rebound, but it’s typically rapid when it happens, so in our view you invest when the opportunity presents. This is what we’ve been doing while remaining focused on higher quality businesses that can withstand shorter term cyclical headwinds”, Ivers said.
The small cap Prime Value Emerging Opportunities Fund has delivered 10.4% per annum net of fees to investors since inception in October 2015 to 28 February 2025. The Prime Value Microcap Fund only opened to retail investors on 1 July 2025 and delivered 9% to 28 February 2026.
The Prime Value Emerging Opportunities Fund is rated Highly Recommended by Zenith, Recommended by Lonsec, and is available on Netwealth, uXchange, Mason Stevens, Hub24, BT Panorama, Praemium, IconiQ and AMP North. The Prime Value Microcap Fund is rated Recommended by Zenith, Recommended by Lonsec.
Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing circa $3 billion in equities, income securities, direct property and alternative assets.
