The total funds under management of Zenith’s rated microcap funds grew more than sixfold in the last three years, according to the research house.
Total funds under management (FUM) in Zenith Investment Partners’ rated microcap universe grew from $115 million to $702 million in the three years prior to 31 December 2017.
A statement from Zenith said findings from its latest sector review revealed the microcap fund universe “came within $200 million of its collective capacity in June 2016”, leading a number of microcap offerings to reach capacity and close off from new investment.
But in efforts to meet growing investor demand, the number of microcap funds grew correspondingly by 125 per cent since 2016, with total FUM soaring by $587 million across three years.
The increase in microcap funds saw the new total capacity of the microcap segment rated by Zenith come to $1.2 billion as of 31 December 2017, which the research house further estimated would fill in three years.
The statement acknowledged the risks and volatility that came with investing in microcaps due to the “lack of publicly available research on stocks and impact of strong capital movements”.
However, it maintained the view that by investing outside of the ASX300, microcap funds offered “high performance potential due to these risks”.
“Stocks at the small/micro end of the market capitalisation spectrum have wider performance outcomes, which reinforces Zenith’s view that Micro Cap investing requires professional investment managers who possess the necessary experience and expertise to avoid the inherent risks,” said Zenith head of equities research Quan Nguyen.