Category: Australian Equities Small Cap

Perpetual kicks goals with Mainstream SMA

At the IMAP Managed Account Awards, Macquarie Investment Management took out the Australian Equities Small Cap category for the second consecutive year. 


Finalists

IMAP congratulates all the finalists in the Australian Equities Small Cap category.

  • Infinity Asset Management
  • Macquarie Investment Management
  • Pearl Funds Management
  • Watershed Funds Management

When it comes to investing, they must be doing something right at Macquarie Investment Management, with the manager taking out the 2019 IMAP Managed Account Award for Australian Equities Small Cap for the second consecutive year with its Australian Equities Small Companies SMA. 

According to Brad Partridge – a portfolio manager at Macquarie Investment Management – the Australian Equities Small Companies SMA is a direct equities SMA, which focuses on companies outside the ASX 100 index. 

“This SMA offers clients access to Macquarie’s flagship small companies capability, but instead of it being through a fund, it’s through a direct Aussie Equities portfolio,” Brad says.

He attributes part of the success of the Macquarie Australian Equities Small Companies SMA to the systematic approach that underpins Macquarie’s investment philosophy.

Brad explains: “We run a quantitative screening process. What we are looking for as part of this screening process are companies which have characteristics that have historically worked well in the Australian market.” 

According to Brad, as part of this process, Macquarie looks to buy good quality companies over the long-term at reasonable valuations, with positive operating momentum (such as earnings and share prices). 

“This systematic approach to investing works particularly well for small caps,” says Brad.

Investment process

Macquarie’s investment process revolves around three core factors: quality, value and momentum. A score is then applied to each company based on these three factors. Companies are then ranked based on their scores. A portfolio is then put together that is biased towards the companies that rank the highest.

“But we also use a commonsense overlay in constructing the portfolio to ensure that we’ve got good diversification across various themes and sectors, as well as to ensure we are taking appropriate position sizes to account for the individual stock specific risk in each stock,” Brad says. 

Measuring success

To win an industry award is one thing, but how does Macquarie internally measure the success of its offering?

According to Brad, Macquarie’s success rests with the consistency of its performance over long periods of time.  

“Relative performance is always a key focus,” Brad says. However, Macquarie just doesn’t focus on short-term outcomes. Instead, it focuses on consistency in returns over the long-term. 

“And that’s what you’d expect from a systematic approach. So, if we can deliver consistent second quartile performance, relative to our competitors, then that’s a great outcome for clients.”

Macquarie is a benchmark aware manager, but it does run quite a high tracking error. For example, within Macquarie’s Australian Equities Small Companies SMA, it aims to beat the Small Ordinaries Index, but it runs a tracking error of about 5 per cent. 

“This means we do have performance outcomes that can look somewhat different to the index at various points in time,” Brad says. “But, broadly speaking, we hope to outperform the Small Ordinaries Index by about 3-4 per cent per annum over the long-term.”  

Second consecutive year

By anybody’s reckoning, winning the IMAP Managed Account Award for the Australian Equities Small Cap category for a consecutive year is a remarkable achievement. So, what does the win mean for Macquarie Investment Management?

“Obviously, we’re very proud of the achievement,” Brad says. “We’ve been managing SMA portfolios in Australian equities for 18 years, so we’ve got a long track record in this space.

“Winning the award again is great recognition of the strong capability we have within managed accounts. It highlights that we’ve got a market leading small caps offering, both in terms of managed accounts and also managed funds.”  

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