The S&P/ASX 200 Index (ASX: XJO) is a sea of calm relative to some of the extreme volatility witnessed in the S&P/ASX Small Ordinaries Index (ASX: XSO), particularly among the smallest companies in that index.
Writing in its October 2022 monthly report, the 1851 Emerging Companies Fund says it has seen "some of the largest daily movements in our index for many years".
"In over 15 years of investing in the Australian small-cap sector, we have never seen the fast-changing macroeconomic environment driving share price moves like we are witnessing as opposed to underlying company fundamentals."
Managed by small-cap veteran Chris Stott, since inception in February 2020 the 1851 Emerging Companies Fund has returned 12.8% per annum, soundly outperforming its benchmark.
October saw the fund rise 4.4% after fees compared to its benchmark's rise of 6.5%
Contributors to performance included the XRF Scientific Limited (ASX: XRF) share price jumping 24% higher for the month after the manufacturer of equipment and chemicals largely for the mining sector reported a "strong trading period across all divisions, driven by activity in the mining sector and buoyant demand for capital equipment products".
On the flip side, the Eureka Group Holdings Ltd (ASX: EGH) share price fell 14% in October after the owner and manager of senior independent living communities announced a $28m capital raise at $0.47 to fund the purchase of two new villages. The company also announced they are in due diligence with over $20m worth of further potential acquisitions.
In early November, 1851 Capital lodged a notice of initial substantial holder with the ASX, declaring it held 5.06% voting power in Eureka Group.
The fund's five largest positions are listed as Capitol Health Ltd (ASX: CAJ), PSC Insurance Group Ltd (ASX: PSI), PeopleIn Ltd (ASX: PPE), OFX Group Ltd (ASX: OFX) and Ridley Corporation Ltd (ASX: RIC).
The OFX Group share price continued its upward trajectory into November after the foreign exchange services company reported a strong performance for the first half of FY23, including upgrading its profit guidance for the full year. In what has been a tough year for many payment companies, OFX Group shares have been a standout, gaining 57% over the past 12 months.
1851 Capital expects inflation to peak this coming quarter, saying the impact of the recent east coast rain will likely drive food prices higher once again. Despite the recent hikes in interest rates, the fund says economic activity continues to remain robust with no major slowdown evident.
"We continue researching for companies to position for an inevitable economic recovery over the medium term," concluded the fund.
