Firetrail Investments has announced that the Firetrail Australian Small Companies Fund – Active ETF (FSML) will be available on the ASX later this month, allowing investors to gain exposure to a portfolio of between 30 to 60 of the firm’s “best Australian small cap opportunities”.
According to the investment manager, the fund aims to outperform the S&P/ASX Small Ordinaries Accumulation Index over the medium to long term after fees.
Portfolio manager Eleanor Swanson explained that small caps are more leveraged to an economic recovery, making this an ideal time to allocate to this segment of the market.
“If we think about the composition of the index, you’ve got 30 per cent in resources, 20 per cent in consumer discretionary, and about 10 per cent in REITs. That means when interest rates are cut and the economy starts to recover, small caps should outperform,” Swanson said.
According to the portfolio manager, history shows that the median active small-cap manager has delivered investors 37 per cent in the 18 months following an economic trough. Compared to the ASX 100, this amounts to a return of 20 per cent.
“You can really see that leverage of small caps to a good economy coming through,” Swanson said.
“However, it’s really challenging to pick an economic trough, so we do encourage investors to look at the long-term track record of an asset class. If we look at the median active small-cap manager, they’ve delivered investors 11 per cent per annum over the past 20 years. So it really is an asset class that’s a proven wealth compounder.”
Turning to why Firetrail chose to launch the fund in an active ETF wrapper, she said that active managers can capitalise on key market trends, such as artificial intelligence and decarbonisation, by strategically targeting these growing themes.
“Another key reason is that we see that coverage in the small cap part of the market in terms of brokers is often a lot less, so you get the opportunity to uncover hidden gems before they’ve hit extreme valuations.
“And finally, in small caps, we’ve heard of a lot of big large-cap names … not that long ago they were in the small cap part of the market, so it really is an opportunity to get onto those big Australian success stories before they materialise,” Swanson said.
