With the team prioritising corporate governance, McDermott observes that the fund’s managers will only invest in companies where the interests of minority shareholders are respected. “The Stewart Investors team completely ignore benchmarks and peer groups when selecting investments for their portfolio – while the sustainability name indicates the managers only invest in businesses where all stakeholders (shareholders, employees and customers) are well treated,” said McDermott. He chose the Stewart Investors Asia Pacific Sustainability fund and the Ninety One Asia Pacific Franchise fund. In the seven-year period following the market peak in March 2000, small caps were up by more than 70%, whereas large caps were up by less than 10%.Īgainst this backdrop, Darius McDermott, managing director at Chelsea Financial Services and FundCalibre, selected two small/mid-cap funds for comparison for this week’s head-to-head. Some market observers are drawing parallels between now and the period immediately following the dotcom bubble bursting in 2000. In addition, for those that seek exposure to some of the secular growth themes such as digitalisation and renewable energy, the leaders in those fields are often small and mid-cap companies. This is particularly true in Europe, where over the past decade a lot of money has gone into large companies like L’Oreal and LVMH, leaving behind a long tail of small and mid-cap companies that look undervalued and under-researched. For one thing, valuations are a lot more attractive for small and mid-cap funds than they have been for a long time. However, there are many that think that there are reasons to be cheerful this time around. The Russell 2000 small-caps index is lagging behind the S&P 500 this year, edging up about 0.3% compared with a gain of 7% for the large-cap index as a number of small-cap ETFs have bled billions of dollars, particularly following the bank collapses in March. Small and mid-cap funds tend to fare poorly during a bear market, which should in theory mean that they are set to struggle for the foreseeable future, especially as the US Federal Reserve is still forecasting a mild recession towards the back end of 2023. Darius McDermott, Chelsea Financial Services & FundCalibre
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