SMSF investors have accepted micro-caps as a viable asset class now more than ever, with the trend anticipated to continue into global investments.
“[The micro-caps story] has accentuated more over the last two to three years and I think that’s replicating the overall growth of SMSFs, but the other thing that I think is worth pointing out is the asset class of micro-caps has become much more mainstream over the last five years,” Microequities Asset Management chief executive and chief investment officer Carlos Gil told selfmanagedsuper.
“If you go back to the 1980s, small caps were the exotic asset class and today they’re an absolute standard.
“That trend is emerging with micro-caps where they are becoming a much more standardised form of asset class, whereas perhaps six to 10 years ago it was much more of an exotic asset class.
“Now they’re becoming a bona fide part of people’s portfolios. That’s an interesting trend and you can see that by the sheer growth of the number of micro-cap funds that have come out.”
Gil said SMSF investors made up much of Microequities’ client base.
“Last time we did a check, 65 per cent to 70 per cent of our client base was investing in our funds through an SMSF,” he said.
“Our investors typically don’t tell us the overall size of their portfolio, but in terms of their average portfolio weighting to micro-caps, my guess would be about 5 per cent to 15 per cent, which I think is reasonable.”
Going forward, he said he believed the bulk of Microequities’ client base would still be SMSF investors.
“We do. We think that it will be a growing trend,” he said, adding the manager was ready to meet the demand.
“In terms of our evolution, what we think will happen as well is that there will be a trend towards international assets and greater exposure to overseas investments, so our third fund will be around that thematic.
“It will be a global micro-cap fund as we think that’s a natural space for us to move into as we’ve already got two domestic micro-cap funds – an income fund and a total growth fund.”
He said the new offering would be launched sometime this year.
Micro-caps had become a more logical asset class for SMSFs to invest in for a number of reasons, he said.
“The most important issue for an SMSF trustee is to maximise the asset base over the long term and so that really is the quintessential dilemma facing any trustee in terms of how to invest over the long term with a view to maximise that nest egg to fund their retirement,” he said.
“What we invest in, which are industrial micro-cap companies listed on the ASX, are a great conduit for providing long-term wealth generation because generally, and it’s a valid generalisation, the growth profile of our asset class is better than, say, the mid-cap or large-cap companies.
“So you’re deploying capital over the long term. What you should see is your net return over the long term maximise by having this asset class.”
Furthermore, the investment term horizon equated to many investors coming through from the SMSF space in terms of their parameters for investing, he said.
“They’re not investing with us with a view of one or two years; we are looking to maximise their net capital return over the long term, so there is a very good parallel in terms of the investment term horizon,” he said.