The most consistent and best-performing small-cap funds over the long term
While past performance may not be a reliable indicator of future performance, it sure can be illuminating. Funds go through short-term periods of outperformance and underperformance, depending on their style tilt or investment process, and whatever may be in vogue at that point of the cycle, so, it's normally difficult for them to consistently outperform over the long term.
After all, SPIVA data shows that 83.33% of funds underperformed the S&P/ASX 200 over the past 10 years. Over the past five years, 77.55% of funds underperformed the benchmark.
So, how do you identify the funds that HAVE outperformed the benchmark consistently over the long term?
Well, my friends - say hello to my little friend, batting average. For those not in the know, and that includes me before starting this series given my truly dismal understanding of sports, batting average is a statistical tool that helps cricket, baseball and softball fans measure a player's success on the plate (i.e. their ability to consistently score runs).
With the help of Morningstar, we've attempted to do that for funds. By dividing the number of rolling periods in which a manager beat or matched an index by the total number of rolling periods within 10 years, for example, investors can measure a manager's ability to consistently beat the market.
For example, a manager who meets or outperforms the market in every rolling period during a given time frame would have a batting average of 100. A manager who beats the market in half of these rolling periods would have a batting average of 50. Anything above 50 can be considered a "good" batting average - as they have managed to outperform the market at least half of the time.
This article will focus on Australian small-cap funds. If you are interested in learning about the most consistently outperforming funds for globals and Australian large caps, click on the hyperlinks. We have measured performance over five and 10 years, the first measured over one-year rolling periods and the decade is measured over three-year rolling periods.
For context, over a 10-year period – the average batting average for small-cap funds was 48 for value, 59 for blend, and 58 for growth.
As always, this is just one measure and should not be used as an indicator that these funds can continue to consistently outperform in the future. But, without further ado, here are the most consistently outperforming funds over the past five and 10 years.
NOTE: Please drag your cursor across the tables below to see the entire tables. All data below is provided by Morningstar. The categories below are also designated by Morningstar.
Australian Equity Mid/Small-Cap Blend - 5 years
Name | Inception Date |
1 Year Return |
3 Year Return p.a |
5 Year Return p.a |
10 Year Return p.a |
Batting Average 5 Years (rolling 1 year periods) |
Batting Average 10 Years (rolling 3 year periods) |
Ophir Opportunities Fund | 3/8/12 | 28.24 | 11.78 | 16.16 | 18.14 | 95.92 | 97.65 |
Mercer Australian Small Companies | 30/11/04 | 12.83 | 0.62 | 7.56 | 7.51 | 95.92 | 65.88 |
Spheria Australian Microcap Fund | 16/5/16 | 13.93 | 9.64 | 15.41 | 93.88 | ||
Prime Value Emerging Opportunities Fund | 8/10/15 | 7.97 | 1.88 | 12.14 | 91.84 | ||
First Sentier Australian Small Companies | 31/12/93 | 5.18 | 0.83 | 8.78 | 11.03 | 89.80 | 95.29 |
Australian Equity Mid/Small-Cap Blend - 10 years
Name | Inception Date |
1 Year Return |
3 Year Return p.a |
5 Year Return p.a |
10 Year Return p.a |
Batting Average 5 Years (rolling 1 year periods) |
Batting Average 10 Years (rolling 3 year periods) |
Pendal MicroCap Opportunities | 1/3/06 | 18.88 | 4.03 | 12.95 | 14.85 | 81.63 | 100.00 |
Ophir Opportunities | 3/8/12 | 28.24 | 11.78 | 16.16 | 18.14 | 95.92 | 97.65 |
Ausbil MicroCap | 1/2/10 | 33.53 | 6.82 | 12.82 | 15.25 | 67.35 | 96.47 |
First Sentier Australian Small Companies | 31/12/93 | 5.18 | 0.83 | 8.78 | 11.03 | 89.80 | 95.29 |
UBS Australian Small Companies Fund | 31/3/04 | 6.93 | 1.13 | 8.05 | 10.41 | 89.80 | 92.94 |
Australian Equity Mid/Small-Cap Growth - 5 years
Name | Inception Date |
1 Year Return |
3 Year Return p.a |
5 Year Return p.a |
10 Year Return p.a |
Batting Average 5 Years (rolling 1 year periods) |
Batting Average 10 Years (rolling 3 year periods) |
Macquarie Australian Small Companies | 7/6/06 | 14.48 | 4.48 | 9.25 | 13.90 | 97.96 | 100.00 |
DNR Capital Australian Emerging Companies | 31/8/18 | 12.99 | 5.91 | 12.70 | 93.88 | ||
Ausbil Australian Emerging Leaders | 1/5/02 | 8.88 | 3.95 | 8.70 | 8.51 | 87.76 | 57.65 |
CFS Australian Small Companies | 28/2/03 | 6.21 | -0.96 | 7.38 | 8.79 | 85.71 | 75.29 |
Tribeca Australian Smaller Companies | 5/8/10 | 17.60 | 2.29 | 8.77 | 8.85 | 83.67 | 82.35 |
Australian Equity Mid/Small-Cap Growth - 10 years
Name | Inception Date |
1 Year Return |
3 Year Return p.a |
5 Year Return p.a |
10 Year Return p.a |
Batting Average 5 Years (rolling 1 year periods) |
Batting Average 10 Years (rolling 3 year periods) |
Macquarie Australian Small Companies | 7/6/06 | 14.48 | 4.48 | 9.25 | 13.90 | 97.96 | 100.00 |
Selector Australian Equities | 7/12/04 | 17.95 | 2.59 | 7.15 | 11.68 | 53.06 | 87.06 |
Tribeca Australian Smaller Companies | 5/8/10 | 17.60 | 2.29 | 8.77 | 8.85 | 83.67 | 82.35 |
SGH Emerging Companies | 9/10/01 | 4.16 | -6.87 | 4.76 | 13.21 | 51.02 | 82.35 |
Fidelity Future Leaders | 22/7/13 | 16.43 | 2.04 | 5.61 | 10.58 | 57.14 | 81.18 |
Australian Equity Mid/Small-Cap Value - 5 years
Name | Inception Date |
1 Year Return |
3 Year Return p.a |
5 Year Return p.a |
10 Year Return p.a |
Batting Average 5 Years (rolling 1 year periods) |
Batting Average 10 Years (rolling 3 year periods) |
Ganes Focused Value | 14/10/02 | 22.84 | 7.57 | 12.23 | 10.54 | 97.96 | 75.29 |
Microequities High Income Value Microcap | 1/3/12 | 9.99 | 6.29 | 11.02 | 8.84 | 95.92 | 55.29 |
Cromwell Phoenix Opportunities Fund | 23/12/11 | 10.19 | 6.20 | 13.51 | 14.47 | 91.84 | 100.00 |
Microequities Pure Microcap Value | 3/10/17 | 12.82 | 6.68 | 16.34 | 91.84 | ||
Affluence Small Company Ordinary | 21/4/16 | 5.62 | 5.13 | 12.60 | 89.80 |
Australian Equity Mid/Small-Cap Value - 10 years
Name | Inception Date |
1 Year Return |
3 Year Return p.a |
5 Year Return p.a |
10 Year Return p.a |
Batting Average 5 Years (rolling 1 year periods) |
Batting Average 10 Years (rolling 3 year periods) |
Cromwell Phoenix Opportunities Fund | 23/12/11 | 10.19 | 6.20 | 13.51 | 14.47 | 91.84 | 100.00 |
Ganes Focused Value | 14/10/02 | 22.84 | 7.57 | 12.23 | 10.54 | 97.96 | 75.29 |
Realindex Australian Small Comp Value | 17/11/08 | 14.18 | 3.86 | 6.79 | 8.82 | 69.39 | 69.41 |
Perennial Value Smaller Companies Trust | 7/3/02 | 17.22 | -4.96 | 3.61 | 6.56 | 46.94 | 65.88 |
Microequities Deep Value | 6/3/09 | 15.72 | 3.61 | 10.92 | 71.43 | 61.18 |
Breaking down the data with Steven Le from Morningstar
You may have noticed the batting averages for the blend category are higher than those for growth and value - meaning, some of these funds adopt a more "style-agnostic" approach and may have greater flexibility to their portfolios depending on market conditions.
However, as Steven Le, the Associate Director of Manager Research at Morningstar explains, it's really up to an investor at the end of the day whether they use a style-agnostic or style-focused fund in their portfolios.
"There are obviously trades-offs from a portfolio construction standpoint: a manager might shift a fund's style at their discretion and investors are beholden to that if they opt for a style-agnostic strategy, while having separate allocations to growth and value provide greater control for those who want to actively manage style exposure themselves," he says.
In addition, Australian small-cap managers seem to have an advantage over their large-cap and global peers when it comes to beating their respective index from a consistency standpoint - with higher overall batting averages across the three styles over the long term.
Le believes there are a few reasons for this, namely:
"One is the information advantage active managers have in a segment of the market that is comparatively under-researched. This can enable skilled managers to uncover and capitalize on insights that are not factored into share prices," he says.
"Another reason is that the index comprises a considerable amount of lower-quality and speculative stocks with low or negative profitability and cash flow, which active managers can easily avoid, enhancing relative performance."
Like in the previous global and Australian large-cap articles, we once again asked Le to name the one strategy that stands out from the rest of the pack. In the case of small and mid-cap Australian equity funds, Le points to the First Sentier Investors Australian Small Companies Fund.
"The team has been consistently impressive in their breadth and depth of insight, and they have a track record of translating their analytical prowess into strong long-term relative performance," he says.
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