Antares Small Companies Fund talks small market outlook

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Antares Small Companies Fund Portfolio Manager, Paul Dewar

Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from the Antares Small Companies Fund is Portfolio Manager,Paul Dewar. Paul, welcome to FNN.

Paul Dewar: Thank you for having me.

Carolyn Herbert: Can you start by giving us an introduction to the Fund for investors who aren’t familiar, and what are its objectives?

Paul Dewar: The Fund invests outside the ASX 100; it invests in both resources and industrial stocks. The objective of the Fund is to outperform the small ordinaries index. We undertake bottom-up fundamental stock analysis; it’s style neutral and appropriate for investors seeking a higher return, but willing to accept a commensurably higher risk profile.

Carolyn Herbert: How did small caps perform this year and are there any standout performers?

Paul Dewar:The index has returned around 14.5 per cent for the year to 30 June. That compares to the ASX 200 of around 0.6 per cent. Small resource stocks have done very well, returning almost 21 per cent. Small industrials around 13 per cent annualised return. As far as standout performers, there’s been a few. APN Outdoor Group Limited (ASX:APO), Aconex Limited (ASX:ACX) and Idp Education Limited (ASX:IEL) are three names the Funds own that have done very well.

APN Outdoor has benefitted from multiple earnings upgrades, stemming from the structural shift of traditional media spend, away from mediums like free-to-air TV to outdoor. And the attractiveness of that has been driven by digitisation of outdoor advertising boards, and that’s been more attractive for advertisers. Aconex provides software that enables all the project stakeholders, on major global construction projects to collaborate effectively together, to deliver solutions for the asset owners. And Idp is a business that’s been driven by the desire for people to work, live and study in English speaking countries.

Carolyn Herbert: Turning to performance now. Where has the Fund made gains over the past quarter and what’s the performance been like, over the past 12 months?

Paul Dewar: So over the past 12 months, the Fund has outperformed the benchmark by a little over one per cent. During the quarter, some of the resource stocks have done quite well, particularly a couple of gold names, Evolution Mining Limited (ASX:CAH) and Northern Star Resources Limited (ASX:NST). And there’s also been some good industrial performers in amongst that, one of them being Nextdc Limited (ASX:NXT), which is a data centre operator. And that’s continued to grow its earnings by filling up its existing facilities, and giving investors confidence that the return on capital that they’re expecting, will come through.

Carolyn Herbert: Finally Paul. In the current low growth, low rate environment; what’s your outlook for the remainder of the year?

Paul Dewar: We think low rates are likely to persist and in Australia, they’re likely to go lower. The US Fed is more on a watching brief there to continue a very modestly paced rate tightening cycle. In that environment of low rates and therefore low growth, we think the market will continue to pay a premium for growth. So anything interest rate sensitive, high P/E or long duration is likely to continue to be well bid. But we are looking for opportunities to rotate some of the portfolio, out of defensive expensives, into some cyclical names.

So we’ve seen some very early stage stabilisation in some of the mining services related names. We think it’s a little early to go into those just yet, but we’re on the lookout for opportunities. As far as thematics, we’ve played a number of those over the quarter and the year. Most of those we think have played out; domestic tourism has been stronger with the decline in the Australian dollar. Obviously the structural issues we talked about earlier in the media that we’ve played through APN Outdoor and oOh!Media Limited (ASX:OML).

We’ve traded a number of retail names, which are exposed to consumer confidence and they’ve held up reasonably well. And then there’re the housing exposed names, which we’re a little cautious about, we’re quite late in the game with that. So no real strong thematics, but we are looking for opportunities to rotate out of some of the names that have done very well, into some of those that are in a recovery phase.

Carolyn Herbert: Paul Dewar, thanks for the update on the Antares Small Companies Fund.

Paul Dewar: Thank you.