Travis Prentice

What’s driving growth in the global toy industry? Not kids.The kidult economy is no longer fringe, it’s franchisable, brandable, and increasingly investable, according to Travis Prentice, CIO and portfolio manager at the Informed Momentum Company (IMC).

By applying a momentum approach to global small cap investing, it becomes possible to identify cultural and technological trends just as they begin to scale.

“Momentum is the best performing factor in global small caps, however, can be overlooked because it lives outside the traditional style box,” says Mr Prentice. “If you can only be exposed to one factor in global small, make it momentum.”

IMC’s investment approach identifies companies that have both price and business momentum. It is an unbiased, systematic process designed to deliver consistent exposure to momentum, which can pick up on powerful global themes.

“Last year, we identified adults (‘kidults’) as the fastest growing demographic for the US$100 billion global toy market, driven by the blind-box craze and a reshaping of the collectibles sector,” says Mr Prentice.

PopMart (HKG: 9992), the Chinese toy maker behind the viral Labubu dolls is the recent posterchild for this trend. They have seen rapid global expansion with the US a key area of future growth.

Legacy players are also riding the wave: Build-a-Bear Workshop (NYSE: BBW) has seen its adult customer base grow from under 20 per cent a few years ago to nearly 40 per cent today.

“Investors often overlook niche consumer subcultures until they scale, and the kidult economy is a great example of this,” says Mr Prentice.

IMC’s investment approach has also recently helped Mr Prentice and his team capitalise on consumer trends and the AI boom.

The process picked up on momentum in the global data centre cooling market, which is projected to triple from US$12 billion to over US$35 billion by 2030. This is being fuelled by the explosive infrastructure demands of AI.

“AI workloads generate intense heat. As hyperscalers like Microsoft, Meta, and Amazon invest in more powerful and tightly packed computer chips, thermal output is surging past what traditional systems can handle. Cooling technology has become just as critical as the compute power itself,” says Mr Prentice.

“Global cooling specialists are stepping up to keep the AI boom from overheating – literally. Companies like nVent (NYSE: NVT), a pure-play on liquid cooling, and SPX Technologies (NYSE: SPXC) a diversified thermal solutions provider expanding liquid cooling capacity for hyperscale data centres, have been beneficiaries of this trend. Asia-based enablers have also had momentum, including Asia Vital Components (TPE: 3017), a key supplier of cold plates and liquid cooling modules.

“The next generation of winners may not be chipmakers, but the companies keeping them from melting down,” says Mr Prentice.

From kidults to cooling solutions, IMC’s investment approach continues to identify and invest in global trends before they become mainstream. In global small caps specifically, momentum can help restore the small cap premium and provide investors with a powerful tool for portfolio diversification and potential outperformance.

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Travis Prentice

The EAM Global Small Companies Fund has been added to the HUB24 platform from 1 July, giving investors greater access to opportunities in global small cap companies. It is the fourth platform that the fund has been listed on since it was launched in Australia late last year, following Praemium, Powerwrap and Mason Stevens. The fund is managed in partnership with EAM Global Investors (EAM) and distributed exclusively in Australia by SG Hiscock & Company (SGH).

“We are seeing growing interest in global small caps, as this part of the market continues to perform well.  It offers investors good diversification from the large cap sector, which has been dominated by a handful of companies and carries increasing levels of risk” said Anthony Cochran, head of distribution at SGH.

“EAM Global Investors has a proven track record of delivering strong risk adjusted outcomes for investors,” Mr Cochran said.

The EAM Global Small Companies Fund seeks to deliver consistent alpha using EAM’s Informed Momentum® approach to investing in global small cap companies. EAM has utilised this same investment process across all its equity strategies since inception of the firm in 2007.

The fund aims to provide investors with capital appreciation by investing in stocks generally within the market cap range of the MSCI ACWI Small Cap Index (ex-Australia) across 22 Developed Markets countries and 25 Emerging Markets countries. The portfolio consists of 100-150 holdings, with an adaptable stock selection process designed to capture opportunities across geographies (excluding Australia), industries, and traditional styles.

Travis Prentice, portfolio manager of the EAM Global Small Company strategy and CIO of EAM, says the fund has benefited recently from its holdings in the US, Korea and India, with momentum exposure and stock selection proving key to performance.

So far in 2024, the strength of the market has predominantly come from a few key players in large cap. Small caps can offer differentiated exposures to offset the increasing concentration risks in many portfolios. Additionally, a supportive macro backdrop could mean relative outperformance on the horizon. Less uncertainty around interest rates, improving earnings growth and accelerating M&A should be tailwinds for small cap.

“We are seeing an amazing level of concentration in the larger end of the market, while there remains a diverse set of compelling opportunities in the small cap space for stock pickers like us,” Mr Prentice says.

The EAM Global Small Companies Fund has returned 13.59 per cent since inception in 2023 after fees compared to 6.81 per cent for its benchmark, the MSCI ACWI Small Cap Index (ex-Australia). In the first half of 2024, the fund gained 17.82 per cent net of fees, while its benchmark returned 4.56 per cent for the period.

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Travis Prentice

SG Hiscock & Company Limited (SGH) in partnership with US-based asset manager, EAM Global Investors LLC (EAM) has launched the EAM Global Small Companies Fund into the Australian market. The fund will be distributed by SGH and provides Australian investors access to global small companies.

The launch of the fund follows the recent partnership announcement between SGH and EAM Global Investors.

EAM’s chief executive, Travis Prentice, said the systematic investment approach used by the firm has gained traction in the US and he expects the Australian market will follow suit.

“We use our own proprietary approach called Informed Momentum®, whereby our investment team invests in companies with positive momentum, but we also add rationale and risk management overlays to deliver alpha for clients.”

The listed universe of global small companies represents around 11,000 stocks, equating to 88 per cent of all publicly listed companies. By number of constituents, the global small cap universe is seven times larger than its mid and large cap peers combined. Spanning both developed and emerging markets, this opportunity set provides strong opportunities for portfolio diversification.

Mr Prentice said the sheer size and dynamics of the small companies’ universe can make it difficult for an investor to research each and every stock. Systematic elements within the investment process – such as momentum signals – mean opportunities can be identified and capitalised on in a timely manner.

“Historical data over the last 30 years shows the cumulative performance of the momentum factor outperforms that of value, quality and growth factors over time.

“Additionally, over the same period, momentum wins on a risk-adjusted basis, suggesting that an investor with the added tailwind of momentum exposure may prove beneficial over time.

“We’re looking forward to offering Australian investors access to such a unique investment style through SGH,” Mr Prentice said.

The EAM Global Small Companies Fund in Australia holds between 100-150 companies and does not use pre-set sector or country weightings, allowing the portfolio manager to follow the momentum factor within the risk management parameters of the fund.

EAM Global Investors – which has AU$3.4 billion in funds under management – has been in the Australian institutional market for several years and partnering with SGH provides a greater level of exposure to the adviser market.

Head of distribution at SGH, Anthony Cochran, said the addition of a global small companies’ manager with such a distinct investment philosophy is already generating strong interest from local advisers.

“EAM is entering the market at a time when advisers are looking for innovative investment products that have a proven track record of delivering returns.

“Our initial discussions with advisory groups have been overwhelmingly positive, and we anticipate strong demand for the strategy in Australia.

“Providing exposure to the momentum factor means investors don’t have to pick between value or growth. EAM have a proven track record of delivering strong risk adjusted outcomes for clients,” Mr Cochran said.

The EAM Global Small Companies Fund has also been awarded a recommended rating by leading research house, Zenith Investment Partners.

The research report said: “Zenith believes EAM employs a differentiated investment approach and considers the investment team to be highly experienced. Overall, we believe EAM is well-positioned to deliver upon the Fund’s investment objectives.”

EAM Investors has joined several other global funds managers in the SGH Partnership Program, including Morgan Stanley Investment Management (Australia) Pty Ltd, LaSalle Investment Management Securities LLC. SGH and abrdn.

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Stephen Hiscock

High conviction fund manager SG Hiscock & Company Limited (SGH) is partnering with EAM Global Investors LLC (EAM) to offer an exclusive global small cap strategy to the Australian market.

Under the arrangement, EAM will join SGH’s Partnership Program alongside other global funds management businesses including Morgan Stanley Investment Management (Australia) Pty Ltd, and LaSalle Investment Management Securities LLC. SGH and abrdn have also entered into a strategic partnership whereby SGH has become the wholesale distribution partner for abrdn’s international funds in the Australian market.

EAM is a San Diego-based fund manager founded in 2007 which manages a range of strategies including Global Opportunities, a global small cap strategy established in 2017. EAM has a team-driven approach across all its investment strategies, utilising a systematic approach combined with stock selection, tailored risk management and efficient implementation to deliver outcomes for clients.

According to SGH executive chair and chief investment officer, Stephen Hiscock, the addition of EAM is a natural complement to the existing suite of Partnership Program asset managers.

“The global small cap market is a fascinating space in this economic environment, and EAM is a well-respected fund manager with a proven track record of delivering returns for investors.

“Under the Program, we’re able to provide Australian investors with access to investment opportunities across global equities and global real estate investment trusts, and now with EAM, global small caps.

“The Partnership Program is well established in the local market, and EAM sees value in our distribution team acting as ambassadors for its product and strategies,” he said.

EAM uses a systematic investment approach called Informed Momentum®, the firm’s time-tested philosophy invests in companies with positive momentum and adds rationale and risk management to deliver alpha for clients.

EAM chief investment officer, Travis Prentice, said: “SG Hiscock & Company has a strong investment network in the Australian market, and it has a proven ability to effectively deliver products and strategies on behalf of global managers.

“Our firm has existing institutional client relationships in Australia and we are thrilled our capabilities will now also be available to the adviser market. The distribution team at SG Hiscock comes highly regarded, and we’re excited to tap into their expertise and relationships with domestic adviser groups,” he said.

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