New small-cap LIC, the Spheria Emerging Companies Ltd (ASX: SEC), has passed its minimum subscription level of $100 million and is scheduled to close off its IPO on November 24.
The fund, which is based on the successful small and micro-cap strategy run by Spheria Asset Management, aims to provide not only diversification among smaller listed companies but also dividend income for investors.
The fund manager, which is an affiliate of Pinnacle Investment Management, is looking to provide fully franked dividends to investors, a rarity at the smaller end of the market.
Spheria is a specialist Australian small-cap manager with a long pedigree in the asset class sector. Principals and portfolio managers are Marcus Burns and Matthew Booker, who together ran the Schroders Investment Management Australian smaller companies fund prior to starting their own specialist boutique in March last year.
The boutique is partly owned by Pinnacle Investment Management, which provides back-office and marketing services.
While, admittedly, a short-term performance number, the strategy that the LIC is based on has outperformed its benchmark by a wide margin from July last year to August 31 this year. The one-year performance is 9.5 per cent, compared with the S&P/ASX Small Ordinaries Accumulation Index return of 3.2 per cent, while the since-inception performance is 11.6 per cent, against the index’s 4.3 per cent. The IPO is seeking up to $250 million.
Jonathan Trollip, Spheria’s chair of the LIC, said last week that the strong demand showed investors were seeking diversification from highly concentrated portfolios by allocating to a quality small-cap product.
He said: “At the small end of the market, the opportunity for growth is invariably higher. Also, the smaller cap sector is less well researched, meaning a high-calibre team can exploit pricing inefficiencies. Given the wide universe of smaller companies, it is beneficial for investors to outsource to a specialist manager who has the necessary experience in navigating what is a higher risk but also potentially higher returning segment.”
There has also been strong interest in other LIC IPOs affiliated with Pinnacle. In April 2017, Plato Income Maximiser Limited raised more than $320 million. And Pinnacle-affiliated Antipodes Global Investment Company Limited raised more than $300 million in October 2016.
