Mike Younger

Investors in small cap stocks are watching potential interest rate movements in the short-term, but a bigger picture opportunity is being found in value due to the attractive prices for many quality smaller companies, according to an expert in small and micro-cap stock investing.

A shift toward small cap stocks occurred during 2025, yet signs of value remain for those prepared to look actively, according to Mike Younger, Portfolio Manager for the Prime Value Emerging Opportunities Fund and Prime Value Microcap Fund. “We have seen a swift rotation in recent months from investors chasing growth at any price, to chasing more value-oriented names.

“There looks to be good buying opportunities among diverse, quality small cap stocks.

“Small cap profit growth has delivered such that the forward valuation multiple is not as stretched as some might perceive, with the Small Ordinaries index at c16x FY27 P/E.

“The question is whether this continues, particularly with the direction of interest rates being in flux.”

An upwards interest rate move might take the gloss off recent small cap momentum, Younger said, though he still expects to find investment opportunities regardless of any rate hikes. “Rates don’t change the portfolio make-up too much for us. We continue focusing on companies that we see generating a minimum 10% IRR every year, and smaller companies provide greater opportunities to find these gems.

“There are currently opportunities to find higher quality industrial businesses that are growing earnings per share at more than 10 per cent per annum with share prices that are underperforming as investors chase resource stocks.”

Potential for volatility during 2026 could play into an active manager’s hands, Younger said. “Volatility can be an active manager’s best friend, providing dislocations between share prices and the underlying value of a company.

“For example, volatility in 2025 allowed us to add quality telco, TPG Telecom, to the fund, as well as trading around our position in Regis Healthcare.”

Younger said consistency is often underrated in small caps, with smaller company portfolios showing great resilience across various cycles. “There’s a misconception that smaller stocks can be ‘boom-bust’, but with careful portfolio construction it’s possible to deliver consistently across cycles.”

The small cap Prime Value Emerging Opportunities Fund has itself been a picture of consistency, having delivered 11.3% per annum net of fees to investors since inception in October 2015 to 31 December 2025.

The 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.

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(L to R): Richard Ivers & Mike Younger

Small cap stocks are finally enjoying a ‘justified’ turnaround, but investors need to be choosy as some sectors of the market run hot while others still look undervalued, according to Richard Ivers and Mike Younger, Portfolio Managers for the Prime Value Emerging Opportunities Fund.

The duo’s top quartile small cap fund was launched 10 years’ ago this month, in October 2015, and they say recent small cap outperformance versus large cap stocks only partially reverses five years of material under-performance.

“We see fundamental reasons why Small Cap out-performance could continue, driven by much stronger earnings growth and lower valuation multiples. We’re also seeing genuine bull market behaviour in certain sectors with some stocks running hot”, Richard Ivers said.

Mike Younger added: “In hindsight, the small cap industrials index bottomed in October 2023, just as the RBA implemented its final rate hike.

“Since then, this index is +49.7% versus the large cap index +38.6%, but has reversed only a small portion of the small cap relative under-performance over the last five years.”

Mike Younger said stronger earnings among smaller companies were an encouraging sign. “Share prices follow earnings, and there are many stocks where improved earnings are yet to show up fully in the share price, so there are currently some good buying opportunities.

“Macquarie Research estimates that small cap, ex-100 stocks will exhibit much stronger earnings growth over the next few years to 2028, while also trading on lower valuation multiples compared to large cap stocks.

“The smaller end of the market is far more diversified than the top 100 and we’re seeing strong opportunities right across the market, but also seeing potential for risk in smaller, speculative companies running hard”, Younger said.

While it seems small cap stocks should have further to run, Ivers and Younger say investors still need to be choosy and protect the downside when investing. “The last 10 years has shown us to ‘expect the unexpected’. It has also shown that market conditions can swing much faster than previous eras, and that brutal sell-downs can occur when momentum shifts.

“Even in good markets we need to consider portfolio construction, and managing the potential downside so that today’s gains can solidify into genuine long-term performance”, Mr Ivers said.

Keeping an eye on the big picture is key to small cap success, as consistent returns can be found in varied market conditions. “Small cap stocks are an area where good managers can make a difference and generate consistent returns across different markets”, Ivers said.

Younger added: “It’s a great market to be in because there’s always something interesting happening – even if one area of the market is disappointing there will be opportunities elsewhere. It’s the benefit of a broad and deep market of smaller companies, and it’s exciting to find those undervalued companies.”

The small cap Prime Value Emerging Opportunities Fund has outperformed the Small Industrial Accumulation Index for each of the last eight years, and has delivered 11.7% per annum net of fees to investors since inception in October 2015 to 30 September 2025.

It is rated Highly Recommended by Zenith, Recommended by Lonsec, Recommended by Genium (class B) and is available on Netwealth, uXchange, Mason Stevens, Hub24, BT Panorama, Praemium, AMP North and IconiQ.

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.

For more information please contact:

Richard Ivers

Portfolio Manager

Prime Value Asset Management

Phone: 0432 925 146

Email: rivers@primevalue.com.au

David Manallack

Manallack PR

Phone: 0407 334 938

Email: david@manallack.com.au

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(L to R): Richard Ivers & Mike Younger

Prime Value Asset Management is opening its Prime Value Microcap Fund to retail investors who wish to capitalise on the strong alpha producing potential of smaller companies on the ASX.

The Prime Value Microcap Fund is a newly launched retail offering, built on the same proven investment strategy and managed by the same experienced team behind the former SIV Emerging Companies Fund. Originally established in 2015 as a wholesale fund designed for Significant Investor Visa (SIV) investors, the strategy has now been made accessible to retail investors for the first time under the new structure and name.

Prime Value Microcap Fund Portfolio Managers, Richard Ivers and Mike Younger, said underperformance in small cap stocks over several years has created attractive valuations. “Some microcap companies are trading at single-digit P/E ratios with double-digit earnings growth and delivering a good dividend yield.

“As the cycle turns these stocks are likely to rebound strongly. It will come quickly. But investors need to be invested first to benefit – once microcaps start running it’s generally too late to get in”, Ivers said.

Microcap stocks also provide ongoing opportunity to exploit an inefficient part of the market, he said. “There is a lot of scope for active managers to generate alpha via smaller companies.

“The Fund is also positioned to capitalise on market swings so investors can enjoy the significant uplift which occurs when microcap stocks run, and we know they can run early and run hard compared to the larger companies”, Mr Ivers said.

The majority of holdings in the Fund are in companies with a market capitalisation below $500 million. The Fund targets quality and avoids speculative stocks including mining. This quality focus is reflected in strong measured risk below the Small Ordinaries index despite focusing on micro-cap stocks, which are significantly smaller stocks than the index.

Prime Value’s Mike Younger said microcaps now resemble small cap companies 20 years’ ago. “These stocks perform in a similar way to small cap stocks 20 years’ ago, they are less researched, less well known, and give managers an opportunity to differentiate and add value.

“There is a ‘sweet spot’ in the lower risk part of the microcap market, via quality companies with resilient earnings combined with a strong growth outlook.”

He said there has been a lot of early interest in the Fund. “There is a dearth of microcap funds generally, and very few which target quality companies and growth while managing downside risk.”

The Prime Value Microcap Fund expects to be available on several platforms in the near future.

Ivers and Younger also manage the small cap Prime Value Emerging Opportunities Fund, which is rated Highly Recommended by Zenith, Recommended by Lonsec, and is available on Netwealth, uXchange, Mason Stevens, Hub24, BT Panorama, Praemium, and AMP North.

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.

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It’s Genium’s first rating for the Fund, and Genium says a Recommended rating reflects its belief that the Fund’s “…strategy has identifiable competitive advantages across several of Genium’s assessment criteria”.

Genium also described Prime Value Emerging Opportunities Fund Portfolio Managers, Richard Ivers and Mike Younger, as “…a commendable pair of investors”.

In its report, Genium said: “Emerging Opportunities mostly avoids the smallest end of the universe, applying its quality- and growth-driven approach with a clear eye on the longer-term outlook.

“We think it’s scalable, fostering confidence that past successes can be sustained.

“This process is sensible and executed methodically”, Genium said.

The Genium Recommended rating follows an upgrade to Highly Recommended by Zenith Investment Partners for the Prime Value Emerging Opportunities Fund in early 2024.

The Prime Value Emerging Opportunities Fund has outperformed the Small Ordinaries Accumulation Index for each of the last seven calendar years with volatility around 20% below the index.

This consistency of performance has come against a varied and often volatile market backdrop including bear markets, bull markets, Covid, low interest rates and high interest rates.

Prime Value Asset Management Portfolio Managers, Richard Ivers and Mike Younger, said change and volatility can bring longer term investment opportunities.

“Markets are currently in flux due to uncertainty and the Trump tariffs, but we know the way forward is to be disciplined and methodical”, Ivers said.

“While there may be some discomfort in the short term we know from previous market cycles that volatility can allow us to buy into quality smaller companies at more attractive prices, with benefits over the medium to longer term.”

Mike Younger said the Fund has a strong track record of being able to capitalise during down markets. “Portfolio construction has been a big driver of returns, and striking a balance between companies with resilient earnings and higher growth stocks.

“We build resilience into the portfolio, which has seen the Fund outperform during down markets about 80% of the time.

“This resilience allows us to capitalise on the opportunities market volatility often presents”, Younger said.

Class B units were introduced for the Prime Value Emerging Opportunities Fund in early 2024, using the Small Industrials Accumulation Index as its benchmark, the most comparable index given the fund does not invest in mining companies.

The Prime Value Emerging Opportunities Fund Class A units has invested to a 8% p.a. absolute return benchmark since inception in October 2015.

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Mike Younger

A massive divergence in the valuations of small cap companies on the ASX is creating a ‘princes and paupers’ scenario with potential opportunities for active managers, according to a small cap investment expert.

The ‘princes’ are more expensive than they have ever been, while the ‘paupers’ include many good companies which are now very cheap, according to Mike Younger, Portfolio Manager for the Prime Value Emerging Opportunities Fund.

Younger said 2024 was a momentum year. “There has been a big divergence with expensive quality companies at the larger end of the small cap spectrum, and decent smaller companies now cheap.

“Expensive stocks became more expensive, you had exceptional numbers from a few high flyers and there were some that were left behind.

“It’s not a global phenomenon, either. In some cases Australian valuations are through the roof. Some sectors contain stocks trading at 50x earnings, which is interesting when compared to ‘Magnificent Seven’ companies where most trade at 25-30x earnings.

“This makes 2025 a really interesting year. Such divergence creates a good environment for active management in small cap investing.”

Adding to the interest are high bond yields and robust rate cut speculation, Mr Younger said. “Focusing on companies with earnings growth, and having an eye to valuation is key. But it’s a balancing act.

“A catalyst for change could be rate cuts – the cheaper stocks which have a few question marks regarding earnings growth could come back into vogue. Many of these are good companies whose valuations are currently the lowest they have been in five years.

“The elastic band may snap at some point, and you’ve really got to manage that risk and the opportunities.

“Regardless of rates, economy and earnings growth – when there is change, there is always opportunity to find companies with strong growth drivers”, Mr Younger said.

The Prime Value Emerging Opportunities Fund has outperformed the Small Ordinaries Accumulation Index for each of the last seven calendar years. It has delivered 11.6% after fees per annum for the year to 31 December 2024, and 11.4% per annum net of fees to investors since inception in 2015. The Fund is rated Highly Recommended by Zenith.

Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing over $3 billion in equities, income securities, direct property and alternative assets.

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(L to R): Richard Ivers & Mike Younger

Superior earnings growth forecasts for small cap stocks relative to larger companies is set to drive a rebound in the smaller end of the market, but active management is key to capitalise on this growth, according to a white paper on Australian small cap companies.

A long-awaited rebound in small cap performance is expected to be driven by improved earnings growth as the post-Covid economy normalises, according to a white paper titled Why Now is the Time to Invest in Listed Australian Small Companies, recently released by Australian-owned boutique, Prime Value Asset Management.

“Historically, Small Cap companies have generated stronger earnings growth than Large Caps which is often a function of their relatively smaller earnings base and market share, with small improvements in market share having a more material impact on earnings growth vs larger companies.

“Equity markets look forwards, however, and consensus estimates once again forecast stronger EPS growth for Small Caps relative to Large Caps over the medium term as the economy normalises post-Covid.”

The white paper says active management has been shown as the best way to capitalise on the opportunities in small cap stocks due to the increased diversification available, the larger universe of stocks, and the relative lack of coverage of these stocks.

Greater diversification allows managers to take a stronger conviction: “…a 10% rise in BHP shares adds a very large 103bps to the Large Cap index return, and so has a large impact on a fund that doesn’t own a position. By contrast, a 10% move in Life360 [the largest constituent in the small cap index] would add just 16bps to the Small Cap index’s performance … placing little pressure on Small Cap investors to own stocks they don’t necessarily have conviction in.”

Smaller companies also provide the opportunity to invest across a wider spectrum of the economy. “A key argument for investing in small caps is the success active Small Cap managers have had in generating consistent alpha.

“This is a function of the relative inefficiencies in the small cap market, such as lower liquidity and less analyst coverage, combined with stronger earnings growth and a more fragmented index composition.”

Managers can also differentiate their performance from the index via portfolio construction: “The dispersion of returns is much wider in small caps than in large cap stocks. While there are high-growth companies that deliver outsized returns, there are also companies that significantly underperform or fail altogether.

“Therefore, avoiding investment mistakes — particularly companies that experience large drawdowns — is a key attribute that can contribute to consistent long-term returns.”

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Mike Younger

Small cap stocks seem poised to benefit from the shifting interest rate landscape, yet while markets await more evidence of a potential cut there remain plenty of good opportunities to invest in smaller companies, according to Mike Younger, Portfolio Manager for the small cap Prime Value Emerging Opportunities Fund.

Mr Younger said the key to longer term success in small cap stocks is to invest through the cycle, but local small cap stocks are at an interesting juncture as the market looks for evidence of an impending rate cut. “With interest rate cuts widely forecast for 2025 you can see that catalyst coming. We’re not sure when it might happen, but we know smaller stocks tend to jump out of the blocks.

“Data shows small cap stocks are the first movers in a rate cutting environment, and can provide significant outperformance.

“We also know small cap stocks have some ground to make up compared to their large cap counterparts. But it’s crucial not to get too caught up in the short term.”

While higher interest rates have caused the small cap indices to underperform, several quality companies have still been doing well, a fact reaffirmed during the last reporting season. “In small cap investing there is always the opportunity to find quality, resilient companies in any market.

“Smaller companies offer more diversification than larger cap stocks, offering a bigger investment universe. There is always something interesting to look at, and this was underlined during the last reporting season where several quality companies surprised on the upside, including Regis Healthcare, Breville Group, and Chorus.

“While small cap stocks as a group may fluctuate on economic shifts there are many resilient smaller companies with resilient earnings, which can deliver consistency over time. Investors can do well targeting these stocks rather than just waiting for an interest rate rally.”

He said investing through the cycle allowed canny managers the opportunity to buy in to quality companies at attractive valuations. “It’s well established that volatility brings opportunity in smaller companies. Those dips in valuations give us the opportunity to buy great companies on sale.”

The Prime Value Emerging Opportunities Fund has delivered 11.1% after fees per annum to investors since inception in 2015. It is rated Highly Recommended by Zenith.

Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing around $3 billion in equities, income securities, direct property and alternative assets.

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Mike Younger

There are pockets of opportunity in small caps, with parts of the sector trading at discounts compared to their large cap counterparts, but investors need to watch the potential for earnings risks according to a small caps investment specialist.

Mike Younger, Portfolio Manager in the small caps team at Prime Value Asset Management, which manages the outperforming Prime Value Emerging Opportunities Fund, said while there looked to be bargains available investors need to look beyond valuations. “Some small caps may look cheap on the surface. For example, the small industrial companies are at pre-Covid lows and trading at more than 20 per cent discounts compared to large industrial companies.

“One third of small cap stocks in our portfolio are on a PE of 13 times or lower. But PE only tells part of the story – investors need to dig deeper and find companies which are well-managed and resilient.

“We know small caps investors are rewarded by looking beyond valuations alone to understand the management and the underlying quality of the business.

“There are still earnings risks in small caps, with some uncertainty on the horizon including the possibly of global recession.

“Investors need to consider the sustainability of company earnings, and factor in issues around interest rates, inflation and debt. There are pressures on household budgets, with rents increasing and interest rates rises still working their way through the economy.”

Mr Younger said such market conditions made cash-generating companies more attractive. “The great thing about small caps is that there are always pockets of opportunity in any market.

“There is currently opportunity to buy cash-generating businesses at relatively favourable multiples.

“There are some interesting companies operating in the travel sector, which is looking healthy post-Covid.

“Aged care also looks interesting. And profitable technology companies are attractive as that sector experiences a re-rating of risk.”

The Prime Value Emerging Opportunities Fund takes a high conviction, benchmark unaware approach, with approximately $120 million funds under management, and is managed by boutique investment manager, Prime Value Asset Management.

Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing over $2.5 billion in equities, income securities, direct property and alternative assets.

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Mike Younger

Outperforming consistently over the long-term including tough market conditions has been key to the Prime Value Emerging Opportunities Fund being awarded Best Small Cap Manager at the Zenith Fund Awards for 2022.

Portfolio Managers Richard Ivers and Mike Younger said market volatility had created plenty of buying opportunities throughout the last year. “As investors we like to take the opportunity to look through current market conditions and find good quality companies which are now more attractively priced.

“We’re always looking to invest and to build on the quality in our portfolio. Small caps tend to experience the strongest rebounds when markets do eventually turn positive, and are often the first movers in a recovery”, Mr Ivers said.

The Zenith Fund Awards recognise excellence in funds management with an emphasis on long-term factors including performance.

Along with the Zenith Fund Award, the Prime Value Emerging Opportunities Fund was recently ranked first in Mercer’s Australian Small Companies (ex-ASX100) survey for annualised performance over three years to FY2022, a period including the initial COVID sell-off, the subsequent recovery, and the current inflationary environment. It was also ranked a Star Manager this year by Financial Newswire in association with SQM Research.

Mike Younger, Portfolio Manager, said the Prime Value Emerging Opportunities Fund has an historical track record of outperforming 83% of months when the index has fallen. “Protecting capital comes back to stock selection. Picking resilient companies with strong cash flow, recurring revenues and low debt levels drives performance in good times but also insulates somewhat during bad times.

“These fundamentals in stock selection not only minimise the damage done from falling markets, they bring the potential to enjoy the next upswing.”

The Prime Value Emerging Opportunities Fund takes a high conviction, benchmark unaware approach, with approximately $120 million funds under management, and is managed by boutique investment manager, Prime Value Asset Management.

Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing over $2.5 billion in equities, income securities, direct property and alternative assets.

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