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Micro market yields big opportunities: Acorn
The micro-cap sector may be small but there are still opportunities for research-driven managers to add value, said Acorn portfolio manager Douglas Loh.
Loh said although markets had not recovered to the same levels as before the Global Financial Crisis, the micro-cap sector had performed best, according to the figures.
"If we then look at where the market bottomed back in February 09, the micro-cap sector has done the best, it's up 85 per cent," he said.
Loh said Acorn's analysis of the sector showed less than one percentage differentials between the all ordinaries, small cap and micro-cap sectors over a 38-year spread.
He said this meant managers could time their entry into the market or different parts of the market depending on their risk profile.
"If you are any good, you can probably time the cycle within each sector and try to pick the top to sell, the bottom to buy or so on. Or you just invest in the sector where you can find managers that have the competitive edge to deliver alpha," he said.
Loh said initial public offerings have been almost non-existent in the micro-cap sector, and placement and rights issues have dropped dramatically year-on-year.
While many companies have been stockpiling cash, they must return to market where capital raising is currently low, according to Loh.
But he said he expected this to improve dramatically.
"A lot of them are loss makers, so they will either have to go to the bank to borrow funds or in a lot of cases, go to the equity market and raise more capital," he said.
He claimed the not-so-secret to Acorn's success was pure stock research in an area nobody else was really interested in. Loh said notwithstanding market cycles, the company had delivered over 7 per cent outperformance against all benchmarks.
"Any investors who have done their homework, looking at companies and being ready to make an investment really quickly, should be able to reap some good benefits out of it," he said.
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