Montgomery Small Companies Fund 5-year anniversary
In this week’s video insight, I am joined by Gary Rollo and Dominic Rose, portfolio managers of the Montgomery Small Companies Fund, as they celebrate the fund’s five-year milestone. They discuss the fund’s impressive performance, having delivered a 9.3 per cent compound annual return and outperforming the S&P/ ASX Small Ordinaries Index by 33 per cent since its inception in 2019. Despite market volatility, including the COVID-19 pandemic and central banks’ rapid rate hikes, the fund has consistently identified growth opportunities. Gary and Dominic share their investment approach and outlook for small caps, highlighting their strategy to capitalise on emerging market conditions.
Transcript:
David:
Hello, I’m David Buckland, and welcome to this week’s video insight. Today, I’m being accompanied by Gary Rollo and Dominic Rose, portfolio managers of the Montgomery Small Companies Fund, which recently turned five years of age.
From its inception on the 20th of September 2019, to the end of September 2024, initial investors in the Montgomery Small Companies Fund have turned $1 into $1.57 on an accumulation basis, whilst the S&P/ ASX Small Ordinaries Index has turned $1 into $1.24, for a 33 per cent outperformance. Hence, a compound annual return of 9.3 per cent after fees, and a 5 per cent annual average outperformance.
Thank you for joining me, gentlemen, and congratulations on this achievement and for the admirable outperformance against the benchmarks since inception.
This has been achieved against historically volatile markets, as the fund started just a few months before the COVID-19 pandemic, which saw global lockdowns and central banks responding through massive stimulus programs.
This consequently led to higher inflationary expectations, which forced central banks to embark upon the most rapid rate hiking cycle in history.
What could you say about your style of investing that has helped you navigate such market volatility?
Gary:
Thanks, David. Look, Dom and I, we are active investors. And by that, we mean that we are pragmatic and nimble. We like to make investments based on the best opportunities that we can see at that time.
And if conditions change, naturally, so do the opportunities that we see. So we move capital to the best place that we can, the best bang for buck that we can. The idea is simply that we let our winners run, and we cut our losers as early as we can and simply move on to the next opportunity that we see. And in small caps, there are plenty of opportunities for us to go for.
David:
The other interesting factor is the extent to which small caps, both domestically and globally, have underperformed large caps. Historically, the returns of small caps and large caps show very strong correlation. However, about three years ago, this correlation broke down, and there is now an approximate 32 percentage point gap between the two when looking at the Australian market. Why do you think this gap exists, and what is needed to restore it?
Dominic:
Yes, so that gap really turned up right at the time that global central banks surprised the markets with this very rapid rate hiking cycle. And with that came economists shifting their expectations for global recessions. When people are worried about a recession, they worry about corporate earnings, particularly smaller company earnings. And what we tend to see during those environments is that the investors of global funds and large caps, who come down to smalls for that extra growth, pull their head in and leave small caps.
What we’re seeing now is those macro headwinds clear; we’ve got economists shifting their focus to a soft landing scenario, we’re starting to see global central banks cut rates, and we’ve now had 2 earning seasons of pretty resilient corporate earnings, particularly in small caps. So, with those macro clouds clearing, we would expect those global fund managers and those large cap fund managers to come back to small caps, to come back for what they came for in the first place, and that’s better bang for buck growth. We’ve set the portfolio up to benefit from that. So, with the outlook for small caps looking much more positive now, as central banks have shifted to an interest rate easing bias and earnings growth is strong, where do you see the best opportunities in the small cap market?
Gary:
That’s a great question, David. Look, generally speaking, when the macro outlook stabilises, it means there’s a broadening out of economic activity. And with that broadening out, there’s also a larger range in the market where Dominic and I can find opportunities.
But specifically, we see a very interesting opportunity in those structural growth stocks, particularly in those growth stocks where we see accelerating growth coming out of what’s been a weak economic backdrop. Those present to us as very interesting at the moment because, as Dom mentioned, those large global funds, those large domestic large cap investors, they like to come to small caps to find better bang for buck growth.
Dominic and I, we are small cap-only investors. We’ve gone out, met all the management teams during the down cycle, knocked on the door, asked how their businesses are going, and we already know who the winners are in that space, and we’ve positioned the portfolio accordingly.
David:
Thank you, gentlemen, for your time. And again, congratulations on the five-year anniversary of the Montgomery Small Companies Fund and your annual average outperformance of five percentage points after all fees and expenses.
And to you our investors, thank you for your continued support. If you have any questions on the Montgomery Small Companies Fund, please feel free to contact us by email at investor@montinvest.com or phone us anytime on 02 8046 5000. That’s 02 8046 5000. Thank you.
Important Information
You should read the Product Disclosure Statement (PDS) before deciding to acquire the product.
The issuer of units in Montgomery Small Companies Fund (ARSN 635 229 533) (Fund) is the Fund’s responsible entity Fundhost Limited (ABN 69 092 517 087) (AFSL 233045). The Fund’s investment manager is Montgomery Lucent Investment Management Pty Limited (ABN 58 635 052 176, Authorised Representative No. 001277163). Copies of the PDS and Target Market Definition (TMD) are available to download from this page and at https://fundhost.com.au/
An investment in the Fund must be through a valid paper or online application form accompanying the PDS. Before making any decision to make or hold any investment in the Fund you should consider the PDS and TMD in full.
The information provided does not take into account your investment objectives, financial situation or particular needs. You should consider your own investment objectives, financial situation and particular needs before acting upon any information provided and consider seeking advice from a financial advisor if necessary.
You should not base an investment decision simply on past performance. Past performance is not an indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
