Exchange-traded product provider BetaShares has launched a new ‘smart beta’ fund that invests in high quality, profitable smaller Australia companies.
The BetaShares Australian Small Companies Select Fund typically holds 50-100 stocks outside the 100 largest companies, selected on factors such as positive earnings and a strong ability to service debt.
The fund, which aims to outperform the S&P/ASX Small Ordinaries benchmark, generally holds stocks within the 350 largest companies by market capitalisation, said BetaShares.
"Relative valuation metrics and price momentum are also evaluated as part of the stock selection process. In addition, liquidity is taken into account with a view to selecting stocks that are more liquid relative to other small companies," said BetaShares.
BetaShares managing director Alex Vynokur said that investors seeking exposure to small-cap stocks are currently "poorly served" by passive vehicles.
"These indices have historically not provided extra return for the added risk," Mr Vynokur said. "At the same time, traditional actively managed offerings come with a significant price tag, which can materially diminish returns to investors.
"As the S&P/ASX Small Ordinaries Index contains many unprofitable, speculative and illiquid stocks, which tend to perform poorly over time and cause a drag on index returns, Australian small caps is one of the few sectors where most active managers have been able to deliver alpha over the long-term."