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Transcription of Finance News Network Interview with Antares Small Companies Fund Portfolio Manager, Stuart WilsonLelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Antares Small Companies Fund is Portfolio Manager, Stuart Wilson. Stuart welcome to FNN.
Stuart Wilson: Thanks, good to be here.
Lelde Smits: When do small cap stocks tend to do well, and what are you looking for in a stock before you enter the position?
Stuart Wilson: Smaller companies are typically more sensitive to the economic cycle, and this is really a function of the types of industries that they’re in. And also the fact that smaller businesses typically have what you call, less pricing power than larger companies. Therefore, when economic conditions are weak, they tend to have lower earnings. But as economic conditions are weak and recover, you typically get strong earnings growth and you also get typically a rerating of the stock. So that’s really when you get the best performance out of the small end of the market.
Lelde Smits: Your benchmark is the S&P ASX Small Ordinaries Accumulation Index. How has the Fund performed relative to the index over the September quarter and further back?
Stuart Wilson: The Fund pretty much performed in line with the index over the quarter. Now it’s really important to remember that the small company fund and share funds in general, are actually very volatile from quarter to quarter. And they’re really suitable for longer term investors. So if we look at longer timeframes, if we go to let’s say five years, the Fund performed six per cent per annum after fees, which is around six per cent per annum after fees better than the benchmark, over five years.
Over longer timeframes, so since the start of the product back in 1996, the Fund has returned 12 per cent per annum after fees. And the fees are quite low, which is around six per cent per annum better than the benchmark. So what this means, is that additional outperformance compounded over long timeframes, can actually have a very significant effect on the total returns for investors.
Lelde Smits: Which stocks have supported your performance and which have detracted?
Stuart Wilson: Slater & Gordon Limited (ASX:SGH) and Ardent Leisure Group (ASX:AAD), which I guess have been really some of the longer term stalwarts within the portfolio, have continued to perform well. So they came out with very positive earnings results during the recent reporting season. And the outlooks that both companies gave were very promising for the years ahead. I guess some of the recent acquisitions to the portfolio have also done well. So stocks like Cover-More Group Limited (ASX:CVO), Mantra Group Limited (ASX:MTR) and iSentia Group Limited (ASX:ISD) have also done very well.
Set against this, a few of our resources exposures have been a bit weaker. So particularly BCI Iron Limited (ASX:BCI) and Tiger Resources Limited (ASX:TGS), fell during the big resources selloff that we saw during the quarter. And also Tox Free Solutions Limited (ASX:TOX), which actually came out with very disappointing earnings result for the second half Financial 2014. And it looks like we’ll have relatively weak earnings going into 2015, but this will then recover in 2016 and 2017 you see. So from these levels, we actually think that’s a good investment too.
Lelde Smits: When we last spoke at the end of the March quarter, the Fund had benefitted from investing in housing and retail stocks. How has your exposure to both changed over the year?
Stuart Wilson: We did have a fairly significant exposure to housing construction related stocks, primarily in CSR Limited (ASX:CSR) and Fletcher Building Group (ASX:FBU). What has happened is those stocks have actually performed well, up to around middle of the year. And at that point in time, we really thought they’d reached full valuation, so we started trimming those stocks a fair degree. In the subsequent selloff in the market during the September quarter, both stocks have come back and actually we think they’re good value at current levels. And we’re happy to continue to hold them, given that the housing recovery is still coming through.
Now as relation to the retail stocks, yes we had a very big exposure in retail stocks and they did fantastically well, up till around the middle of the year. What we noticed then coming into the election, was that we felt consumer confidence was likely to weaken and also this would have an impact on consumer spending. So that’s obviously a negative for retail stocks. And additionally there was quite warm weather down here in Melbourne, and we saw that there was also in Sydney. So we thought well that’s particularly bad news for some of the apparel retailers.
So Kathmandu Holdings Limited (ASX:KMD) for example which we had for a period of time, we aggressively sold down a fair degree of a holding that we’d made a lot of money on, as well as some of the other retailers. More recently these stocks have fallen to very low levels. We now find them quite attractive and we’ve significantly rebuilt these retail positions, at materially lower prices.
Lelde Smits: Finally Stuart, which sector of the small cap market is showing promise at the moment?
Stuart Wilson: Well we still like a number of the housing related exposures through the cycle coming through. We quite like some of the retail names even though retail spending isn’t that strong, just primarily because of the valuations. And the other thing we’re finding is, across the market in a range of different sectors, there are sort of selective opportunities.
Lelde Smits: Stuart Wilson, thank you for the update from Antares Small Companies Fund.
Stuart Wilson: OK thank you.
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