Boutique’s fund launch hints at big gains for Aussie small caps

Datt Capital, a Melbourne-based boutique equity investment manager, is leveraging its expertise in the Australian listed assets space to launch a new Aussie small cap fund.

Datt said the fund will specialise in Australian listed companies outside of the S&P/ASX100 index as well as pre-IPO equities “in a limited manner”.

The fund will target companies with the potential for long-term capital growth, Datt said, with an emphasis on “quality small company investment exposures”.

The fund manager said it had timed the launch of the fund to take advantage of an uptick in SME valuations, with Datt expecting small caps to outperform the index, bucking investors’ expectations around this investment class.

“On a five-year rolling timeframe, the small cap index is currently trading at a material divergence from the broader market index in terms of valuation,” the fund manager said in a statement.

In the past, according to Datt, this divergence has augured periods of strong returns by small cap funds.

“The end of zero interest rate policy and the end of the dominance of private market capital presents a smorgasbord of small cap opportunities which are mispriced relative to large cap peers,” said Emanuel Datt, Datt’s chief investment officer.

“Historically small caps have been less efficient than large caps which, while carrying more risks, also provide more opportunity to uncover alpha, especially as these stocks are under-researched or entirely ignored by analysts,” he added.

As a long-only focused fund manager, Datt said its new fund “will take a concentrated approach… holding between 15 to 25 long equity positions at any given time”.

Datt said it had taken advantage of learnings gained from its market cap agnostic Absolute Return Fund to “identify a number of investment prospects in the small company space” adding his belief that an “unconstrained small cap fund will perform well relative to the index”.

The firm reports that its Absolute Return Fund has, since inception, achieved a net compound annual return of 15.63%, or a 106.17% cumulative return.

The Datt Capital Small Companies fund has a minimum investment of $50,000, which it said is “particularly appropriate for self-managed superannuation fund (SMSF) trustees looking to obtain exposure to this attractive market sector”.

Datt boasts that it was an early investor in Afterpay when the fintech’s market cap was valued at under $1 billion, with its share price trading at $6; the firm currently has a market cap of $14.76 billion, hitting a final share price of $66.47 before being delisted from the ASX in early 2022 following firm’s takeover by US payments giant Block.

The investment firm was also an investor in burgeoning resource giant WA1, first entering the stock at a market cap of $100 million; the company currently trades at around $300 million.