Datt Capital’s small cap fund slated for July

Oksana Patron

10 May 2023

Datt Capital has announced it has a small cap fund on the drawing boards which is slated to be launched in July, as the fund believes it is opportune time to uncover alpha across this market sector.

The decision followed a number of listed small caps having been sold down heavily in 2022 and having fallen more than 20%. However, Datt Capital believes that now there are some good opportunities to snap up sustainable businesses across various industry sectors where the upside potentials outweighed the downside risks.

“Many of these small caps, which offer investors access to earlier-stage, higher-growth businesses, are currently trading on single-digit earnings multiples, and, as such, present a compelling investment story,” Datt’s chief investment officer, Emmanuel Datt, said.

He also said it was a significant decision by the Future Fund to have recently declared it would increase its exposure to small-caps via active managers.

Datt added that although small-cap investments inherently carried more significant risks than large-cap stocks, academic research supported the idea of a small-cap premium offering outsized alpha.

“The small-cap market is often less efficient than its large-cap counterpart, providing a higher probability of uncovering alpha due to limited analyst and investor attention,” he noted.

“In this investment environment, active investment managers come to the fore by making decisions based on fundamental analysis, aiming to add value by identifying undervalued or overvalued securities. This approach emphasises the importance of investor skill and the opportunities presented by market volatility and varied returns.”

The new fund would target early-stage investors and build on the active fund management gleaned over the past five year track record set by the Datt Capital Absolute Return Fund.

“To maximise the chances of capturing alpha, we consider diversification, risk management, trading costs, the benefits of active management, research and monitoring,” the firm’s CIO stressed.

“We place a premium on reducing trading costs, adopt an active management approach to exploit mispricing opportunities, while our research and monitoring ensures we remain informed about industry trends, market developments, and individual company performance.”