General Discussion, page-4791

And this on Livewire Markets.
The slowing Australian economy affects different types of companies in various ways. For example, those in more cyclically exposed sectors have been some of the most “aggressively sold,” according to Spheria Asset Management Portfolio Manager Matthew Booker.
Another small-cap-focused investor, Melinda White from Longwave Capital Partners, discussed how her team assesses companies to find those in the “sweet spot” of their lifecycle.MozoHow to triple the interest on your savings Both White and Booker spoke with us ahead of their appearances at the upcoming Pinnacle Investment Summit 2024. In the following wire, they discuss the macro setup for ASX small-caps and explore their stock selection process.
Melinda White, Longwave Capital Partners and Matthew Booker, Spheria Asset Management© Provided by Livewire Markets
What is your team’s view on the outlook for ASX small-caps and why is it important investors maintain or add exposure to small caps?
Booker: The last two years have been a challenging environment for small-cap investing with rates rising rapidly to combat inflation, leading to a weakening economy and investors shifting their investments to more diversified larger companies.We think the economy is clearly showing signs of strain which is likely to lead to an easing of monetary policy. We believe investors will look forward at this point and seek more attractively priced investments with the potential for greater economic leverage.: We've been talking about this phenomenon since mid-2023. If you step back and think about the long-term role of small caps in an investor's portfolio, 30 years of Morningstar data tells us that the median active small-cap manager has delivered annualised returns (+12.5%pa) that are both above the All Ords index (+9.9% p.a) and above the median large-cap active manager (+9.8% p.a).
This indicates to us that an allocation to an active small-cap manager should, over the long term, give investors access to a source of non-redundant alpha.
With markets at all-time highs, what are the attributes you focus on when looking for smaller companies to add to your portfolio?Booker: The core philosophy at Spheria remains unchanged. We aim to find businesses with consistent free cash flow, low-gearing and that trade at a discount to our assessment of the underlying valuation.With the slowing economy the market has aggressively sold cyclically exposed stocks many of which are now trading at multi-year lows. We see this as a relatively attractive opportunity, where the combination of low valuations and strong balance sheets is likely to lead to strong future performance.
White: Longwave combines rigorous and repeatable systematic and fundamental investment processes to identify quality small-cap companies that have entered and are remaining in what we call the 'sweet spot' of a company lifecycle.We look for small-cap companies that can internally fund their growth and also have sound balance sheets. We then hold a more diversified basket of those companies to generate a more consistent alpha journey for our clients.