While the performance of the small cap sector in Australia has been mixed in recent years, IFM Investors executive director Rikki Bannan believes this year could be a good one to invest in some select small cap stocks in Australia, including in the consumer sector.
“It’s been a tough couple of years for small caps, but this might be the year for them,” said Bannan, a small cap specialist at the $220bn industry super backed IFM Investors.
“Mispriced opportunities tend to be more prevalent in the small cap sector. It could be a good time to be investing in the space.”
Bannan, whose stock tip at the last Sohn Australia conference last November – ASX-listed bio tech company Telix Pharmaceuticals – has more than doubled in price over the year, will be tipping another small cap when she speaks at this year’s Sohn conference in Adelaide on November 15.
But with Sohn attendees paying $3500 a head for tickets to the conference, she is tight-lipped about what sector it might be in.
There are some hints she likes some stocks in the consumer sector, with some companies performing better than expected and this year’s tax rate cuts and expected falls in interest rates over the next year ease pressure on consumers.
“The consumer sector – whether it is retail, consumer services, media, or travel – has been quite topical recently,” she said.
“It has been a tough consumer environment in the last couple of years given the cost-of-living pressures and high interest rates.
“(But) a lot of stocks have performed better than expected and declines in same-store sales have not been as severe.”
Bannan says some retailers have done a good job managing their costs, including managing inventory, “which means gross margins have held up well”.
“With the focus turning to rate cuts and the tax cuts which kicked in in June, there is a sense that the consumer could be through the worst of it,” she said.
“It is still a tough environment, but … there could be potentially some good opportunities there.”
IFM, which has $65bn in shares, manages funds for industry super funds in Australia as well as institutional investors offshore, and does not publish a list of its holdings.
Bannan says IFM’s small cap holdings range from companies in mining, health care and tech to the consumer sector. But even within sectors, she says, there are very different companies with very different growth potential.
“Across any sector we are looking for the structural growth story,” she said. “We are very bottom up focused.
IFM prefers companies that can grow despite the prevailing macro economic conditions, she adds. “We are looking for businesses with a sustainable competitive advantage. There is a big focus on the quality of management, understanding their strategy and how they are going to execute it, how they plan to fund it.
“We look at the cash generation of the business.”
Bannan says IFM also has a strong interest in “founder-led businesses”. “We like management to be aligned with shareholders.”
While Bannan is still a fan of Telix, which she believes still has significant potential in the growing area of cancer diagnostics, she will be tipping a very different stock this year. She has a strong interest in healthcare stocks and is on the advisory committee of HEAL Partners, a growth private equity fund focused on investments within the health, education and lifestyle sectors.
Bannan says she has had an interest in supporting the Sohn conference which raises money for medical research as one of her closest friends died of cancer at the age of 34. She jumped at the chance to participate in the conference last year and the success of her stock pick in 2023 has seen her invited back again.
Co-founders of the conference in Australia have included former UBS chief Matthew Grounds, his former UBS colleague Guy Fowler, and Sydney businessman Gary Weiss.
This year’s conference is expected to bring the total funds raised for medical research by the Sohn conferences in Australia to more than $70m since the first conference in November 2016.
Bannan started her career at accounting firm KPMG, where she gained her accounting qualifications, before moving to the sell side sector with a job at Macquarie Bank. “Then the opportunity came up to move into the small-caps team at IFM and I have been here ever since,” she said.
With a history dating back to 1990, the former Industry Funds Management (now known as IFM Investors) was founded by some of the country’s largest industry super funds. Now owned by 17 major Australian super funds, it has expanded globally and now manages money for more than 660 institutions including insurance companies, universities and sovereign wealth funds.
This year’s Sohn Hearts & Minds conference will be hosted at Adelaide’s Festival Theatre on Friday, November 15. Themes for the 2024 event include space, artificial intelligence, geopolitics, biosciences and investing.
The conference includes stock picks from leading investment experts all over the globe, and is held this year in partnership with the South Australian government.
Half of the proceeds will go to the SA Health and Medical Research Institute.
The Australian is a media partner of the conference.
This article was originally posted by The Australian here.
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