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.

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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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Richard Ivers

A shift to small cap companies might be underway yet these companies are still trading at a substantial discount to larger companies, suggesting potential upside for investors, according to Prime Value Asset Management.

Richard Ivers, Portfolio Manager for the Prime Value Emerging Opportunities Fund and Prime Value Microcap Fund, said there are multiple reasons why momentum toward small cap companies is justified. “A confluence of factors has spurred this long-awaited shift to small cap companies.

“Interest rate cuts are providing increased confidence in the economic cycle, and there is a strong historical correlation between rate cuts and performance in smaller companies.

“The momentum gathering in equities markets generally has also boosted confidence in the higher-risk segments of the market.

“And small cap companies are still trading at large discounts relative to large cap companies, and in many cases represent outstanding value.”

Ivers said the recent reporting season showed that, while there was some volatility in results, it was a strong season with good earnings growth for many smaller companies. “We’re finding a lot of smaller stocks that look mispriced to us. And we think small caps generally are due some outperformance as well.

“Companies broadly are seeing resilient spending, but they are optimistic about what is to come given interest rates and the positive impact on consumer sentiment.

“Cyclically, housing stocks are starting to benefit, along with consumer discretionary, and AREITs are also poised to do well.”

Ivers said that while the small cap indices had underperformed in recent years, there were always opportunities to add value through stock picking in any market. “There is such a wide diversification of opportunities in small cap companies that you can always find good opportunities.

“We know that over the longer term there are big advantages in staying invested in this sector, regardless of where the broader market is going. The key is being consistent with your process”, he said.

The small cap Prime Value Emerging Opportunities Fund has delivered 11.8% per annum net of fees to investors since inception in October 2015 to 31 August 2025.

It is rated Highly Recommended by Zenith, Recommended by Lonsec, and is available on Netwealth, uXchange, Mason Stevens, Hub24, BT Panorama, Praemium, and AMP North.

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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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Richard Ivers

Active managers are well placed to take advantage of a volatile small cap investing environment, where markets are in a state of flux due to uncertainty about everything from tariffs to interest rates, according to a small cap manager.

Richard Ivers, Portfolio Manager for the Prime Value Emerging Opportunities Fund, said volatility in reporting season was elevated, with big share price moves. “Stocks that ran hard last year when markets were bullish have come off most severely in 2025. This includes high quality, long-term growth stocks.

“This is a function of valuations getting stretched, investors crowding into favourites and expectations the Australian economy will improve, which increases the appeal of more cyclical stocks and provides more competition for the expensive, structural growers.”

Ivers said markets are currently in a state of flux, which creates risks and opportunities for investors. “While interest rate cuts are expected to benefit the Australian economy in 2025, there are also risks to global economic growth driven by US President Trump’s tariff policies.”

In addition, outflows from the small cap sector in recent years have created opportunities for active managers, said Ivers, whose Fund has outperformed the Small Ordinaries Accumulation Index for each of the last seven years. “Change provides opportunity to find companies poised for growth”, he said.

“The biggest driver of outflows for small caps has been the interest rate cycle over 2022-23 when investors took money out of small caps.

“These outflows from small caps provides us with increased opportunities that have been over-looked.

“It allows us to buy quality small cap companies at discounts to valuation and, over time, if our stock selection stands up, these companies will become larger, gather increased index weight and investor love.”

The Prime Value Emerging Opportunities Fund is rated Highly Recommended by Zenith. It delivered 11.3% after fees for the year to 28 February 2025, and 11.3% per annum after fees since inception in 2015.

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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(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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Richard Ivers

Quality smaller companies could potentially be the beneficiaries from the toughest reporting environment in a few years, according to Richard Ivers, Portfolio Manager for the small cap Prime Value Emerging Opportunities Fund.

Mr Ivers said an ability to sort the wheat from the chaff this reporting season could deliver some good buying opportunities, but he expected a choppy season ahead. “Investors will be rewarded by being more selective in smaller companies as the earnings risks in the economy have heightened.

“Some of the quality smaller companies are doing well, following a ‘risk-on’ period in late 2023 and early 2024 which lifted all boats. There are going to be opportunities in these quality companies across reporting season.

“Early indications are that there could be some surprises among companies with previously weak results from earlier this year surprising on the upside.

“We’ve already seen some quality bounce very hard when the outlook was better than expected, but whether this becomes a broader trend remains to be seen.”

Ivers said many parts of the market are in cyclical slowdown, which could bring potential buying opportunities. “We’ve seen softening across retail, advertising, and the household sector.

“As we know from past experience, these cycles can bring opportunities to buy ahead of the next upswing.”

Mr Ivers said a massive rotation into smaller cap stocks in the USA is yet to play out on the Australian market. “There has been massive momentum into small caps in the USA, partly inspired by the lower inflation numbers over there, and while our market often follows the USA the circumstances are currently very different.

“US markets are moving in anticipation of a potential interest rate cut, whereas we’re on a different rate cycle than the USA.

“Interest rates were hiked earlier and higher in the USA, and are expected to cut sooner. If the Fed cuts rates later this year there is potential our market will follow a similar path and we’ll see a greater rotation into small cap stocks – though it will be delayed.”

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 over $3 billion in equities, income securities, direct property and alternative assets.

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Richard Ivers

Small caps continue to lag other sectors of the equities market, creating the ideal conditions to add value, according to Richard Ivers, Portfolio Manager at Prime Value Asset Management, which manages the outperforming Prime Value Emerging Opportunities Fund.

He said: “There are strong opportunities for small cap investors to capitalise on the disparity between smaller companies and the rest of the market

“This has been reinforced by the Future Fund, which recently announced it will invest in small cap stocks for the first time.

“The natural volatility in the sector and the reduced coverage by stockbrokers create the conditions for active managers to show their wares.”

Mr Ivers said small cap stocks exhibited typical volatility over the last financial year with the median small cap company having traded in a share price range of more than 50% during this time. “The share price of the median company in the Small Ordinaries index is trading 22% below its 52‐week high, while also trading 29% above its 52‐week low.

“This volatility provides access to quality stocks at better prices, and is why small cap stocks offer some of the best opportunities for managers to add value as compared to the indices.”

Ivers said actively managing volatility can drive eventual outperformance in small cap portfolios. “It’s possible to achieve relatively consistent returns by using this volatility in our favour.

“Key is the entry price of an investment. Buying in at the right price is a key component of the returns ultimately generated, and we have seen many quality companies suddenly become available at more attractive prices.

“This is assuming investments are made with capital protection in mind, in companies with good management, strong cash flows, a good balance sheet and no issues with debt.”

He said small cap industrials experienced the biggest drawdowns in recent times, which has created some strong buying opportunities in the sub-sector.

The Prime Value Emerging Opportunities Fund returned 13.68% to investors after fees for the year to 30 June 2023, and has delivered 11.2% after fees per annum to investors since inception in 2015. Mr Ivers is part of the team which was winner of the Australian Equities – Small Cap Award at the Zenith Fund Awards in late 2022.

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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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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