Long-term small and mid-cap strategy a winner for Antares Ex-20 Model

A strategic long-term focus on well diversified small to mid-cap stocks paid off in a volatile year for the Antares Ex-20 Model Portfolio, winner of the 2022 Financial Newswire-SQM Research Fund Manager of the Year Australian Equities SMAs award.

The Antares Ex-20 Model Portfolio SMA (separately managed account) looks for long term capital growth in Australian equities which are outside the largest 20 companies by market capitalisation.

John Guadagnuolo, Antares Head of Fundamentals and Portfolio Manager of the Antares Ex-20 Model, said their strategic long term focus on ex-20 stocks offered greater earnings power over time because small and mid-cap firms had a better pathway to growth.

“Larger companies tend to be more mature in their cycle and might be able to deliver income, but have less opportunity to deliver growth,” Guadagnuolo said.

“Small and mid-caps give you diversification and it’s a much more diversified index to invest into, with a much greater outcome of return possibility. The range of outcome in any year between the best and worst performing stock is materially larger than it is for the top 20 – that introduces risk but it also introduces opportunity to provide genuine value.”

The fund reduced exposure to technology and some consumer stocks in 2022, and remains invested in companies such as Lynas Rare Earths, OzMinerals and Independence Group which focus on mining metals and rare earths for the clean energy economy.

“We like to invest in companies that we believe can grow at a faster rate than the market expects through the cycle,” Guadagnuolo said.

“We’ve also got a tactical overlay that allowed us to take advantage of shorter-term dislocations and opportunities this year.”

Guadagnuolo said backed by strong internal research, that tactical ability allows them to “be a bit ruthless”.

“The way that we do that is we divide our companies up into core and tactical stocks based on our sustainability scores,” he said.

“We’re a lot more patient with core stocks because we believe they’ve got a sustainable competitive advantage. Whereas if something goes astray with our tactical stocks, we don’t have any remorse.

“Some firms have very distinct views of what their philosophy is, whereas our philosophy is that everything’s for sale and everything can be bought.”

The Ethical Investment Mid Cap Portfolio SMA run by Ethical Advisers Funds Management, which invests in small and medium sized companies which meet strict environmental and socially responsible standards, was runner-up in the Australian Equities SMA category.

Ethical Advisers Funds Management Co-Portfolio Manager Luke Price said there had been a massive transition to sustainability-focused investments.

“That bodes well for our portfolio because we’re invested in the transition to a low carbon economy, sustainable agriculture, renewable energy, batteries, and electric vehicles,” he said.

SMA model portfolios, which offer direct investment in equities for investors with the benefit of professional management, are a growth story in their own right.

“When we started back in 2014, SMAs and ethical investment were both very niche, and we’ve seen exceptional growth over the last few years in the take up of SMAs,” Price said.

“It just gives advisers all those benefits in efficiency, in transparency, in customisation, and a lot of advisers are really getting on board with SMAs as much as they can.”