Future Fund’s turn to small caps and active management ‘notable’

Oksana Patron

1 May 2023

The Future Fund’s shift towards active management and small caps funds, announced earlier this week, is an “interesting development” and “a sign of the time”, according to Datt Capital.

The move to invest in local small cap funds for the first time would mean that the Future Fund noticed the potential growth of this market segment and the benefits of smaller caps, such as higher growth potential compared to their larger counterparts, could offer even though it may come with higher risk.

“By introducing this new program, the Future Fund may be looking to tap into the potential growth of smaller companies that may be overlooked by larger institutional investors,” Emanuel Datt, founder of Datt Capital, said.

“Datt Capital Absolute Return Fund likewise looks to uncover companies with the potential for growth.”

According to Datt, the Fund’s shift towards backing stock pickers again also looked interesting and aligned with Datt Capital’s Strategy.

“Both [the Future Fund and Datt Capital] believe that the current economic climate, marked by rising interest rates and inflation, is conducive to active stock picking. This suggests that there may be opportunities for investors to generate alpha by selecting high-quality fund managers,” he stated.

Earlier this week, the Future Fund announced it would increase focus on fund manager skill as higher inflation and rates made market returns less reliable.

“Recent events have confirmed that the changes we anticipated in our recent position papers continue to unfold across economies and investment markets. Benign conditions that endured for decades are in the process of significant change, demanding that investors explore new ways to deliver sustainable, long-term returns,” Future Fund’s chief executive, Raphael Arndt, said in the press release.

“We are making continuing changes to the portfolio towards investments that rely on investor skill rather than market risk, reflecting our belief that this approach will be better rewarded in an environment where higher inflation and rates make market returns less certain.”