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Finserve Micro Cap Monthly Report – December 2023

joakim stenberg

A good start for the fund and a strong finish for small companies
The fund had its first NAV on December 11 and returned 5.05 % after fees up to and including the end of December which compares with the OMX Small Cap index which was up 4.95% in the same period.

At year-end, the fund had 139 companies in the portfolio with an average company value of SEK 2.4 billion.

The biggest contributors during the period were K-Fast Holding AB, Calliditas Therapheutics AB, Fasad Group AB, Senzime Ab and Brinova Fastigheter.

The companies with the highest weight and strong trend in the portfolio were Vestum, IAR Systems Group, K-Fast Holding, Logistea and Netel Holding.

In the wake of the return of risk appetite, small companies continued their recovery and the Nasdaq OMX Small Cap index was up 4.67 % on the month and ended the year at -6.33 %. Since the American central bank communicated that they left the interest rate unchanged, Swedish small companies have had a strong development.

Over time, small companies (#small company effect) present better than large companies, but in recent years, small companies have fallen far behind large companies and now the gap has started to be adjusted. Small companies statistically always recover better than large companies after a so-called Bear market (Downward market). That effect is clear if we see how the development has been since the turn of the year.

We believe that the small company trend will continue in 2024 mainly due to continued interest relief and increased national appetite. In connection with the required return on shares going down, company valuations become higher.

Did you know that? 
An equal-weighted index overtime performs better than a value-weighted index.

#The small company effect 
Small companies have long-term yielded higher returns than large companies, Rolf Banz published the first evidence in 1981 and the phenomenon still applies today, even if large companies in certain periods have given higher returns. The most recent was the period 2021 – 2023, but since October 2023 we see that small companies have performed significantly higher returns compared to large companies.

Read more: Rolf Banz (1981) examines the empirical relationship between returns and the total market value of NYSE stocks between 1936 and 1975. He finds that smaller firms (small capitalization firms) have higher risk-adjusted returns than larger firms on average.

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