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In a year of bushfires, cheap money, a Presidential election and a global pandemic, investors were exposed to a rollercoaster ride of mixed emotions, panic selling and dizzying bouts of volatility. Reflecting back on calendar year 2020, it is interesting to see which group of companies outperformed. Large or small caps? Tech or healthcare?
It was a clear win for the smaller end of the market which quite convincingly outperformed the bigger end. The MSCI Australian Shares Microcap Index returned 14.71 per cent and the MSCI Australian Shares Small Cap Index returned 14.58 per cent whereas the MSCI Australian Shares Large Cap Index managed only 1.42% for the year, roughly a 13 per cent difference.
Without question, both microcap and small cap stocks outperformed the top end of the market, which in itself is a rare occurrence. Usually after a black swan event, fear and panic sweeps through markets and investors offload the riskier microcap / small cap stocks first to reduce overall portfolio risk. Yet the pandemic was very different and exposed the large cap universe for what it is; a group of old fashioned, growth-challenged companies.
This led to an outperformance in a number of small cap stocks that were able to benefit from the COVID outbreak. When it comes to small-cap investing, old fashioned active management still delivers. The OC Micro Cap Fund was the best performing fund in the country delivering a whopping 43.1% per cent in the calendar year (December 2020) The result demonstrates the resilience of the micro/small-cap sector last year.
The OC team has over 50 years of investment management experience, with Robert Frost successfully managing small and micro-cap Australian equities since 2001. He is responsible for the portfolio management of the OC Premium Small Companies, Dynamic Equity and Micro-Cap Funds. It’s his skill and experience together with his team of four, that has contributed to the fund’s success. The fund manager said, “virtually all small-cap funds have beaten the benchmark in the last 12 months, and Frost attributes the result to their avoidance of Australia’s challenged resources and mining companies, which comprises a significant chunk of the index.” The top 10 list of small cap stocks recorded massive gains well in excess of 100 per cent.
Whilst the small cap sector outperformed, it was the team’s specific selection of ‘COVID-19 beneficiaries’ and subsequent selection of ‘vaccine beneficiaries’ that rocketed the overall portfolio’s fund performance.
“November was the Fund’s third double digit monthly return since the March lows and the Fund remains well ahead of the S&P/ASX Emerging Companies Index over the calendar year having returned +38.1 per cent (versus +23.8 per cent for the Index).”
