Looking around the grounds for emerging opportunities in Small Caps

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Antares Smaller Companies Fund Portfolio Manager, Stuart Wilson
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from Antares Smaller Companies Fund is Portfolio Manager, Stuart Wilson. Stuart, welcome to FNN.
Stuart Wilson: Great to be here.
Carolyn Herbert: How did the equity market perform for the quarter?
Stuart Wilson: The Australian equity market has been largely driven by events occurring overseas. So initially, the equity market fell quite considerably and that was around a weakness in China, and concerns about a possible global recession. Subsequently it’s risen strongly, based on very Dovish comments out of the US Federal Reserve and also, significant easing by the European Central Bank.
Over the course of the quarter, the small ordinaries index has risen one per cent, significantly driven by a small resources stocks.
Carolyn Herbert: Let’s talk about the Fund for the March quarter. What worked well and what disappointed?
Stuart Wilson: IDP Education (ASX:IEL) continued a very strong run after its IPO late last year. It’s an English language testing and student placement business, and in the half, it delivered a very strong result and rose significantly. So much so that towards the end of the period, it was excessive and we let some of the stock go in the market. Also IRIS International Inc. (NASDAQ:IRIS) we built up a significant position in the company late last year, as we expect very strong performance and growth out of its wealth management software, XPLAN in Australia and the UK over coming periods.
On the negative side Ozforex Group Limited (ASX:OFX) now called OFX, ceased discussions with Western Union Company (NYSE:WU) about a possible takeover.
Carolyn Herbert: What are your views on the market at the moment, given the recent volatility?
Stuart Wilson: The market itself trades at slightly elevated levels. The medium small cap industrial PE is at 14.5 times. That compares to a 10-year average of around 12 to 12.5 times, although it’s really varied quite considerably from seven up to 17 times, over the last 10 years.So it’s slightly elevated levels. There is a big gap at the moment between the lower multiple, but unfortunately lower quality stocks, and the really higher quality defensive higher growth businesses, which traded very quite high levels of around 20 times.
Carolyn Herbert: What themes do you think will play out in the months ahead?
Stuart Wilson:Well, With a high PE dispersion, we think some of the lower multiple stocks will start to outperform the higher growth, higher quality, but significantly higher PE names in the market. Additionally with the Federal election, which is very long, we think a lot of the consumer facing stocks in the market and most particularly the retailers, will do relatively poorly over the coming three or four months.
Carolyn Herbert: Finally Stuart, how’s the Fund positioned?
Stuart Wilson: We have a significant overweight in many of the IT stocks that deliver business critical software, and so they’re both quite defensive, as well as exhibiting strong growth. We also have a moderate exposure in LPTs at the more defensive end. And most recently, we’ve moved to reduce our position in retailers, ahead of a tough period for those stocks.
Carolyn Herbert: Stuart Wilson, thanks for the update on the Antares Smaller Companies Fund.
Stuart Wilson: Thank you again.

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