Nearly three-quarters (72.6 per cent, or 1,451 of 2,000) of companies in the microcap universe are not being properly covered by brokers, creating “vast opportunities” to “uncover hidden gems in the sector”, according to Perennial.
“Much of our focus is on those companies that are poorly researched, which enables us to gain an edge given our internal analytical capabilities,” said Perennial head of small and microcaps Andrew Smith in a statement.
“We can then build a position in the stock before it becomes more mainstream, and our investors enjoy the re-rating through this process.”
Perennial’s Microcap Opportunities Trust had delivered a 50 per cent return in its first year and outperforming the S&P ASX Small Ordinaries benchmark, which delivered 22.4 per cent in the same period between 1 February 2017 and 31 January 2018, according to the statement.
Perennial Value managing director John Murray said investors were able to benefit from the firm’s approach in the under-researched microcap universe.
“Looking at many of the key stock drivers over the last year, most had little or no broker coverage at the time of our investment and we were able to find an edge using our in-house team of analysts.”
Mr Smith pointed to opportunities his co-portfolio managers had spotted in the market such as in the “mispricing” of Galena Mining, as well as the perception of Kogan.com as an opportunity during a time when Amazon was being seen as a threat.
Both holdings had returned over 120 per cent over the one-year period.
“The microcap space is also likely to appeal to private clients with a small business background in particular, as they understand the risk and reward in the sector,” he added.
