Age, Melbourne 13 Nov 2013, by Market Minnows. Money, page 1-2, cm² Capital City Daily - circulation 142,050 (MTWTF--)

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1 NATAGE N001 Age, Melbourne ID PAGE 1 of 5 Money {earn it}{invest it}{enjoy it} WEDNESDAYNOVEMBER13, 2013 Money banking special Isitagoodtimetoinvest inthebanks? Page 4 Ask Noel Doesmyfamilyneedto knowmyplans? Page 5 Quirky investments Cups, silks andshears Aussie icons upforsale Page 8 Find gold among the small fry Market minnows are often overlooked but,ifyouknowwhere tolook,youcannet yourself some bargains. SEE INSIDE

2 ID PAGE 2 of 5 Small,butdon tthrow themback Market minnows can move fast, but they also get eaten, John Collett says. S maller listed companies can add zing to anyone s share portfolio. The market s minnows are often overlooked by analysts who are all over the market s giants. And for those who knowwhattolookfor,suchasthefund managers who specialise in smaller companies, there are big rewards on offer. Ithasbeenabumper12monthsforhighquality smaller companies and the managed funds that invest in them. The Smallco Investment Fund returned 54 per cent for the yeartoseptember30,makingitthebestperforming smaller companies fund for the 12 months. Other smaller company funds had a stellar year as well. While the rewards are there, so are the risks. The market s minnows canshinebrightlyonlytocrashandburn spectacularly. Tom Whitelaw, head of research at Morningstar, says smaller listed companies canaddspicetoashareportfoliobutthey should not replace the mainstays of a portfolio; the household names that spit out reliable, fully franked dividends with consistentlygrowing earnings. Whitelaw says when investors turn fearful the smaller stocks tend tobesoldoffmoreheavilythanlarge companies. Small companies usually pay out lessoftheirprofitsasdividendsto shareholders than do large companies. Dividends provide a ballast to returns when the share prices are heading south. And those in retirement are likely to favour steady dividends. But many of the favoured companies are trading at, or near, record highs because investors are chasing yield and the certainty of their dividends. Richard Hemming, analyst and editor of Under the Radar, a newsletter covering small companies,(and a regular Money contributor) says it s the big-dividend payers who are carryingmoreriskatthemoment.hesays their share prices are vulnerable if there should be a softening of their earnings growth. Buthesaystherearejustmanymore opportunities to discover hidden value among the smaller companies. Ofthe2200companieslistedonthe Australian sharemarket, almost 2000 have market capitalisations less than $300 million andmostarenotfollowedbyanalysts.norare they worthwhile for most fund managers to hold because fund managers cannot get meaningful stakes in the companies, Hemming says. But when they grow, they comeontotheradarofthefundmanagersand big returns can ensue, he says. For this reason, Hemming advocates investors have some exposure to investing directly in the shares of smaller companies. TwoofhisbestcallsincludeSilverChef,a hospitality equipment funding business, and Freedom Foods, which makes allergen-free food.heboughtthestocksearly,butwhen theystartedtobeboughtbyfundmanagers their share prices soared. A small company can also be a takeover target, the shareholders in the smaller company being offered a premium for their shares. Small fry fly The smaller company fund managers that havedonebestoverthepastyearhavenot held smaller mining stocks which, along with their big resources counterparts, have had a tough 12 months. The Smallco Investment Fundholds19stocksandhasdone

3 ID PAGE 3 of 5 particularly well from its shares in Altium, which develops software for the electronics industry. Another good long-term performer forthefundisiresslimited,whichisthe dominant supplier of market data to investment professionals in Australia. Rob Hopkins, co-founder of Smallco Investment Management, says many smaller industrial companies have had a good run and thesharesofmanyarenowover-valued.heis not expecting the Smallco Investment Fund s 54percentreturntoberepeatedoverthe next12months.butwhilehethinks companies such as IRESS and ResMed, sleep disorders equipment maker, are over-valued hetakesalong-termview.heexpectsthe sharepricesofbothcompaniestobe significantly higher in three years time. And anyoneinvestinginshareshastotakethe long-term view. The Hyperion Small Growth Companies Fundhasoneofthebesttrackrecordsofany smaller companies fund. For the year to September 30, the fund returned almost 43percent.Thatperformanceisnoflashin thepan.overthe10yearstoseptember30, thefundhasanaverageannualreturnof almost18percent;almost20percentover fiveyearsand19percentoverthreeyears. Mark Arnold, the chief investment officer at Hyperion Asset Management, says the good returns have been pretty broad based, thoughithasdonewellfromonlineplays real estate site REA Group and jobs website SEEK,whichthefundsoldwhenitentered thetop-100index.hesaysthefundhasdone wellfromitsholdingsinreagroup, Caresales.com and Sky Network Television, among others, during the past 12 months. Resources avoided The Hyperion Small Growth Companies Fund is not invested in the resources sector. Our bias is towards quality businesses, Arnoldsays.Thefunddoesnothold resources stocks because most of those outside of the 100-largest are poor quality, he says. Arnold is forecasting the fund should be able to produce an average annual return of 18percentforthenextfiveyears.Thatisin line with its long-term returns; though the fund is unlikely to reproduce the one-year returnof43percentagainoverthenext 12 months, Arnold says. OC Dynamic Equity Fund has produced a returnfortheyeartoseptember30of 42 per cent and an average annualised return tothesamedateof9percentover10years. Thefundcanhaveupto20percentofits holdings in top-100 stocks and typically does Watch John Collett and Morningstar s Tom Whitelaw discuss the opportunities in the small caps field at theage.com.au/money

4 ID PAGE 4 of 5 not invest in resources stocks. We will only investinstocksthatwecanforecastthekey drivers of the business, says Robert Frost, theheadofinvestmentsatocfunds Management. The fund typically holds about 35stocks. Someofthequalitynamesare becoming expensive and we have sold some of those on valuation grounds; though they remain great businesses, Frost says. One of thoseisreagroup.itisstillaquality business, but Frost says its shares are priced for perfection. Making hay SharesresearcherandpublisherIntelligent Investorlaunchedafundsmanagement businessthreeyearsago.itsintelligent InvestorValueFundhasreturnedalmost 43percentovertheyeartoSeptember30 andhasathree-yearaverageannualised returnof22percent. MattRyan,investmentanalystat IntelligentInvestorFundsManagement, saysthefundtypicallyownsarelatively smallnumberofstocks,usuallyfewerthan 20,andthesestockscanbesmalland illiquid.thefundcanholdtheoccasional largestock.itismanagedwitha value investmentstyle. Whilesomefundsarefocusedonfinding smallcompaniesthataregoingtobecome largecompanies wehavedoneabitofthat andhavehadsomesuccess,ryansays.but theinvestmentmanagementteamalso looksatthosecompaniesthataredoingit toughandthefundhasmadegoodmoney from turnaround stories. Wepickthroughsomeoftheuglier ducklings, hesays.thefundhasdonewell fromsomepropertytrustssuchasingenia CommunitiesGroup,theoldINGReal EstateCommunityLivingGroup.The retirementvillagegroup,likemanyother propertytrusts,wascaughtwithtoomuch debtduringtheglobalfinancialcrisis. ThefundhasalsodonewellfromRNY PropertyTrustwhich,althoughlistedin Australia,ownssuburbanofficeassetsin theus.ryancautionsthatinvestorsshould notexpectthesamebumperreturnsover thenext12months.withthesmaller companiesmarkethavingdonesowell,itis hardertofindgoodvaluesmallerstocks thanitwasayearago. Mostofthefundmanagers,iftheyare beinghonest,wouldsaytheyarehavinga tougherjobfindinggoodideasthanthey were12monthsago, hesays. Experts toptiddlers SMALLCO ResMedLtd(RMD);leadingmaker ofmedicalequipmentforbreathing difficultieswhensleepingandother respiratorydisorders. IRESSLtd(IRE);dominantsupplier ofmarketdatatoinvestment professionalsinaustraliawith increasingpresenceoverseas. SEEK;jobswebsitethatis expandingaroundtheworld. INTELLIGENT INVESTOR RNYPropertyTrust(RNY);owns officepropertyinthenewyorkregion. AntaresEnergyLtd(AZZ); internationalhydrocarbonexploration andproductioncompany. JumboInteractive(JIN);online lotterysalescompanythatis expandingaroundtheworld. HYPERION REAGroup(REA);operatorof Australia smostpopularresidential andcommercialrealestatewebsites. IRESSLtd(IRE);dominantsupplier ofmarketdatatoinvestment professionalsinaustralia. HendersonGroup(HGG);fund managerwithoperationsineurope, AsiaandtheUS.DuallistedinAustralia anduk. OC FUNDS MANAGEMENT SkyNetworkTelevision(SKT); NewZealandpay-TVoperato. SFGAustralia(SFW); independentlyownedfinancial servicescompany. VirtusHealth(VRT);providerof fertilityservicesinaustralia,operating ontheeasternseaboard. UNDER THE RADAR Servcorp(SRV);provides contractedservicedofficesin Australasia,AsiaandEurope. CloverCorp(CLV);produces naturaloilsaswellasproducing chemicalsforthepharmaceutical industry. Infomedia(IFM);developsand supplieselectronicpartscatalogues fortheautomotiveindustry.

5 ID PAGE 5 of 5 Best performers in the small caps field Smallco Investment Ophir Opportunities Intelligent Investor Value Hyperion Small Growth Companies OC Dynamic Equity Ausbil MicroCap Microequities Deep Value Microcap NovaPort Premier Smaller Companies OC Premium Equity Selector Australian Equities Bennelong ex-20 Australian Equities Schroder Microcap Pengana Emerging Companies Perpetual Wholesale Smaller Companies SGH ICE Ausbil Australian Emerging Leaders BT MicroCap Opportunities Naos Emerging Companies Long Short Fiducian Australian Smaller Co Shares 1 Yr % Yr %pa Yr %pa Legg Mason Aust Small Companies A % % % S&P/ASX All Ordinaries Accumulation Index: S&P/ASX Small Industrials Accumulation Index: Source: IRESS Performance data to 30/9/1