Australian markets have taken a backward step in 2022 as the reality of geopolitical conflict, rising inflation and interest rates, plus the potential for a slowdown in global growth sets in.
That's a mouthful, but the reality nonetheless. Markets across the board are seeing red and correlations are all turning positive, meaning most asset classes are heading one way – south.
But that's broadly speaking. At the extremes, there are plenty of shares that are outstripping their peers both here in Australian exchanges and on global terms.
Strong analysis and due diligence will generally trump those styles that involve simply jumping aboard the gravy train and betting on hope. Many experts argue that, over the past two years, there's been a dislocation in fundamentals and the 'hype' of certain themes or trends.
That's why, even as the S&P/ASX 200 Index (ASX: XJO) has slipped more than 4% this year to date, if we look a little deeper, we see there are still various pockets of green among ASX shares.
Don't overlook microcaps, this fundie says
Whilst Australian large caps have suffered losses this year, Marcus Burns, portfolio manager at Spheria Asset Management, is bullish on the smaller end of town.
Micro caps – those ASX shares with a market capitalisation of below $300 million and that sit outside of the S&P/ASX 300 Index (ASX: XKO) – tend to be more volatile and carry more risks than your average passive index fund.
In fact, many large Australian fund managers are mandated to invest in ASX 200 companies for that very reason, in order to preserve client capital during times of volatility.
But not all fundies are bound by the same mandate, however, and active managers such as Spheria are able to explore the more underexploited areas of the market, away from the crowded large-cap space.
Speaking to Livewire recently, Burns noted that small-cap and micro-cap stocks are often "simpler than large companies", and that one can often dig deeper and "get granular" when reading accounts.
As with all prudent investing, however, it's essential to keep a cool head, focus on the fundamentals, and try to avoid the short-term hysteria. Again, the market seems to have been rewarding unsavvy behaviour of late, Burns said.
In micro caps people seem to have lost their way. They're chasing stories and forgetting about valuation being important. We think valuation is important. Cash flow is central to valuation, and also works as a screening tool for us. All those things tie together to work as being central to our process.
Which ASX share is this expert bullish on?
Burns is constructive on NZME Ltd (ASX: NZM), the "old school media business in New Zealand". This ASX share has its foothold on the radio network in NZ and is also the owner of the New Zealand Herald.
Not only that, but it also owns an online property portal called OneRoof, Burns says, and that's sure to fold in more revenue at the top for the company in years to come.
Moreover, the fundie likes NZME's pivot and transformation into digital media, something which he says the company has executed well to date.
"They're going to get more out of digital advertising. That's coming through strongly in the numbers. Also, the radio is starting to digitise, with some of the digital streaming services you can get on the radio," he said.
The company is also in talks with media giants Google and Meta, nee Facebook, Burns says, and this might come through to earnings in a big way.
The graph above shows how the NMZE share price has been outperforming both the ASX 200 and the S&P/ASX Small Ordinaries Index (ASX: XSO).
NZME shares are currently down 2.59% for the day at $1.315 apiece. They are also slightly in the red this year to date. However, in the last 12 months, this ASX share has climbed more than 71% and is now up around 10% for the month.
