Update: Small Caps to Watch 2020

Back in November, we released our top picks for 2020 in the Small Caps space, you can grab a copy HERE.

Here is the investment case for AEF we outlined in November.

It has had a strong start to the year. Ongoing growth in FUM and strong inflows are expected to drive continued profit growth. Strong start to FY20 with FUM up 6.6% from 30 June, to $3.64bn. Positive first quarter net flows of $0.11bn. Strong first quarter investment performance of $0.12bn. Record new member acquisition in September of 1,273 super members – mostly attributable to the highly successful Amazon campaign. Strong growth in FUM.

This is not a get rich quick investment. It is a slow burn and a thematic play with increased flows to super and more and more investors looking at ethical investments. Much like Platinum Asset Management (PTM) enjoyed a scarcity value in the early days, as no one else was looking at International or Asian investments, AEF has this advantage. Google Ethical investing and see how many fund managers are there. Not many.

Expect a slow grind higher as has been the case in 2019. 2020 should be much the same. It is valued at $390m with FUM of $3.4bn.The stock has taken off recently as FUM has grown and it may pay to wait for a pullback after some of the exuberance wears off but for long-term investors looking for a ‘feel good’ exposure to a theme, it offers good upside. The big driver of fund managers' performance is having a good story to market. The actual performance of the fund must be market beating but then it is all down to marketing and having a USP. MFG has Hamish Douglass. AEF has its ethical stance.

It is now up 63% since our recommendation, which is an impressive result in just two months. For those members that bought into this quality company, it could be time to take a little money off the table either using a trailing stop loss or just easing out on the price rise.

As for the rest of the small caps, FDV is unchanged since the recommendation and CAT is now up 7.8%.

Small caps update with One year chart for AEF, FDV and CAT
One year chart for AEF, FDV and CAT.

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