‘Always a company winning’: Microcaps in uncertain markets

The breadth and depth of Australia’s vibrant small and microcap sector means investors always have promising investment opportunities, according to Yarra Capital Management’s Joel Fleming.

The breadth and depth of Australia’s vibrant small and microcap sector means investors always have promising investment opportunities, according to Yarra Capital Management’s Joel Fleming.

Speaking to Reach Markets ahead of his appearance on Meet the Fund Manager on Friday, Mr Fleming said the Russia-Ukraine war and ongoing inflation and interest rate fears have created a series of new challenges for investors to grapple with. 

The higher costs of goods and labour – coupled with uncertainty created by the war and a looming federal election – could begin to weigh on business margins and force investors to reconsider their portfolios, he said.

Although these challenges are present across the full market cap spectrum, Mr Fleming said small and microcap investors had a unique advantage in terms of the diversity of investment opportunities available to them.

“There’s always a company out there that’s doing great things, winning customers, beating its competition and becoming a more important and sustainable part of its industry,” he said.

“The best thing about the small and microcap space is that there’s a very large investable universe, and so there are opportunities from the inefficiencies, as we all know – you’ve just got less people focused on this particular area of the market.

“They also touch every part of the Australian economy. One of the real outperformers over the past 6-12 months in particular has been the lithium stocks, and if we go back in history the majority of these started as small microcap businesses and now many of them are multi-billion companies.”

Pace of change adds to opportunities

Mr Fleming added that technology appears to be evolving at a faster rate than ever before, and this too is creating further opportunities for savvy investors in the smaller end of the market.

“Whether it’s using technology to solve a problem or create productivity or efficiency benefits, whether it be just providing a better service for your customers and a better experience, there’s lots of little businesses out there that are trying to do that every single day,” he said. 

“Sometimes they reach those critical inflection points and start that journey of really starting to hit their straps, generate cash flow, support themselves, invest in their growth and become meaningful companies over time.”

The real challenge for fund managers, Mr Fleming said, is not finding opportunities in which to invest but in identifying which management teams and which business models will go on to become the next big thing in markets.

Join Joel Fleming this Friday, 8th April, at 12pm (AEST) on our fortnightly The Insider: Meet the Fund Manager webcast to hear him talk about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here.

Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets’ position

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