Thesis Asset Management’s Matt Hoggarth has ramped up his exposure to international small caps, saying they offer more reasonable valuations, as well as greater potential for earnings growth, than large caps.
He says: “Small caps are able to deliver better results potentially than large caps as it is easier for smaller companies to grow compared to large companies by equivalent percentage but also you’ve got potential innovators or new disrupter technology coming through from small companies so that high rate of growth is certainly attractive.”
In the past few months, Hoggarth “comfortably” added a 3.75 per cent passive small cap exposure to his Mandate 6 model portfolio through the Vanguard Global Small Cap Index fund. The Mandate 6 portfolio is one of seven in the manager’s model portfolio range, with Mandate 1 being the lowest risk and 7 being the highest.
However, one of the challenges in the small cap multi-manager space is to find strong performing funds, adds Hoggarth.
“Normally you would expect that one of the advantages of small caps is that they are under researched and therefore people who do put the eyes on the research can generate alpha, but in fact when they look at the global smaller companies fund universe in the past it was difficult to find funds that consistently outperformed over a very long period,” he says.
The fund manager is also bullish on Japanese companies as a result of the recent “corporate governance revolution” from the Japanese Government, which has seen companies becoming much more “shareholder-friendly”.
In the fund he holds GLG Japan Core Alpha, covering large caps, and JOHCM Japan, which is exposed to small caps. Both holdings combined make 2.91 per cent of the portfolio.
“We added over 3.75 per cent to our Japan exposure as a result of the success of Abenomics and the committment from the Bank of Japan to expand the money supply and drive inflation. We are very pleased to the see the corporate governance revolution that is going on in Japan with the trend to a much more shareholder-friendly policy on companies,” he says.