Small can be beautiful… and lucrative!
Australian investors and the financial media tend to overly focus on large cap stocks according to boutique investment manager Terra Capital.
“But it can pay to look beyond the obvious,” says Terra Capital’s chief investment officer, Jeremy Bond, as the firm released its latest monthly performance figure for its new small cap vehicle – the Terra Capital New Horizons Fund.
New Horizons Fund has outperformed the All Ords by 23% since inception in January, posting a gain of almost 30% after fees. The fund has also significantly outperformed the ASX Small Ords Index by 16% in the same period. Terra Capital’s longer established Terra Capital Natural Resources Fund is up 300% since inception in July 2010 compared the benchmark performance of -26% (ASX 300 Metals and Mining Index) and -55.7% (ASX Small Resources Index) over the same period.
“Reasons why investors focus on big-stock are of course are understandable, particularly in a market like Australia where just seven stocks dominate the index – four big banks, two miners, and one Telco. These make up almost 50% on the Australian index and are in nearly every investor’s portfolio, with good reason, it has to be said.”
“Our view is not that investors should avoid the majors but that there are excellent and often overlooked opportunities beyond these options.
“As small cap investors, we build a high conviction portfolio of stocks that are often overlooked by investors.
“In September the performance of little known and little covered stock Nvoi Ltd (ASX: NVO) was a significant contributor to the New Horizons fund performance.
“Nvoi Ltd is a good example of a business that the larger market easily overlooks. The Nvoi Platform is a complete ‘workforce-as-a-service’ offering for on-site, non-permanent, white- collar professionals, and Hiring Managers, globally. Nvoi offers a complete validated-candidate search, hiring, billing, and payment, and management service, with Nvoi standing as the employer-of-record in the relationship between Candidate and Hiring Manager.
“Another holding of the fund that is likely to be under most investors’ radar, but we have strong conviction about its prospects, is the US based but ASX listed Updater Inc. (ASX: UPD), which is focused on helping people move home.
“Updater is currently servicing around 70,000 home moves per month in the US and is targeting to service 15% of the market by end of calendar year 2017. Through the use of an extremely user-friendly web application, Updater helps people move home.
“Updater automatically receives time sensitive home mover data approximately 6 to 8 weeks before the actual move occurs, enabling Updater to create an extremely unique mover marketing platform to both help movers make their spending decisions, and facilitate a platform for America’s largest corporations to communicate with those movers before they have made the spending decisions associated with moving home.
“Nvoi and Updater are typical of the small cap businesses that fit our high conviction, high concentration approach.
“Both companies have genuinely innovative business models, globally scalable ideas and in our opinion are businesses that can generate significant cash flow with growth potential courtesy of high-caliber, proven management teams,” Mr. Bond said.
About Terra Capital
Founded in 2010, Terra Capital is an Australian based specialist investment manager for sophisticated, wholesale and institutional clients. Based in Sydney, the firm has established itself as one of the best performing boutique Fund managers in the country. Terra Capital has a proven track record of performance, a focus on risk management and a management team that is strongly aligned with investors.
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