Microcap fund returns 88pc

Fund plans platform listing

By Wouter Klijn
Wed 09 Dec 2009

The inaugural Microequities fund has had a good first nine months.

The Microequities Deep Value Microcap Fund has achieved a total performance, net of fees, of 88.1 per cent since the fund was launched in March this year.

In comparison, an investment in the S&P/ASX Small Ordinaries index would have returned 72.6 per cent over the nine month period to 30 November 2009.

Microequities chief executive Carlos Gill says there is no great secret to the fund's success.

"Every company we invested in was profitable and had strong visibility of underlying growth," Gill said.

"We don't consider that somebody has a business if they are not profitable," he said. "We consider it a project."

The microcap fund was launched at the start of the recovery of the Australian stock market on 6 March.

But this starting point was a mixed-blessing.

Although the smaller company stockprices went up, there was also a sharp recovery of companies that balanced on the brink of extinction.

This so-called 'dash for trash' caused the fund to underperform the smaller companies sector, because it chose not to allocate funds to these highly risky investments.

But after the market started to turn back to more conservatively run companies, the fund picked up in performance.

Microequities is now looking to get research ratings once the fund has a 12 month track record, and will subsequently seek to list on platforms in an effort to attract more retail investors.

But Gill is wary to let the fund become too big.

The fund invests in a maximum of 15 companies, and this restricts how much money can be allocated to each investment.

"If the fund becomes larger than $100 million, then we need to expand the number of companies in the fund," he said. "That would reduce the quality of the companies."

However, the current size of the fund is less than $5 million.

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