BT fund invests below the benchmark to find real value


This week, Morningstar has selected BT Smaller Companies fund as our Where to Invest fund of the week.


The fund is an actively managed portfolio investing in companies outside the top 100 listed on the Australian stock exchange and their equivalent on the New Zealand stock exchange which BT believes are trading below their assessed valuation and which it expects will grow their profits quickly.

benchmark bt small cap

The fund aims to provide a return (before fees, costs and taxes) that exceeds the S&P/ASX Small Ordinaries Accumulation Index over the medium to long term. The suggested investment time frame is five years or more.

Independent commentary

BT Smaller Companies continues to differentiate itself and remains Morningstar's first choice for small-cap exposure. We rate portfolio managers Paul Hannan and Noel Webster as two of the industry's most insightful investors. They've worked together on the fund since 2004, giving pleasing consistency.

Hannan and Webster are well supported by three small-cap analysts, making this one of the most well-resourced in its peer group. BT's small companies team can also tap the firm's well-regarded broader Australian equities team for additional insights. The result is a cohesive group with experience and talent in abundance.

One of the central tenets of the process is quality; the team determines this with extensive travel to assess management and better understand the company and broader industry. It was these visits, for example, that helped Hannan and Webster avoid most of the pain emanating from the mining services sector.

BT's repeatable process also allowed them to navigate the recent glut of IPOs. These shrewd decisions have paved the way for stellar performance. BT has ranked consistently in the first or second quartile each year since the pair took control, with excellent risk-adjusted returns, which is a trend we expect to continue.

The large assets base does reduce agility, particularly at the lower end of the market-cap spectrum.

However, it is comforting that the managers are used to running a fund of this size and have yet to be negatively affected by capacity. In a universe where the assigned benchmark has been easy to beat, the lack of an index-relative performance fee is yet another positive. BT Smaller Companies excels in a number of areas, and for that reason sits atop the podium.

Key fund data

Management fee: 1.22% a year Morningstar analyst rating: Gold Minimum initial investment: $25,000 Role in portfolio: Core


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