Is it time to keep an eye on small cap stocks with the changes to the SIV?

Is it time to keep an eye on small cap stocks with the changes to the SIV?

Anyone here know a good small cap stock fund manager? Australia’s venture capital groups and small cap stocks fund managers probably had a great weekend given the announcement that a significant portion of funds under the SIV programme is to be directed their way from 1 July 2015.

If the SIV program leads to the grant of 1000 visas a year, there could well be an injection of AU$5 billion into the Australian economy annually. Venture capital groups are expected see $500,000 million of this with the Australian small cap stocks possibly absorbing AU$1.5billion.

The question hanging over the changes is whether the wealthy Chinese investors who make up over 90 per cent of SIV applicants will still remain keen on the programme. Venture capital groups and fund managers who spoke to The Australian Financial Review (AFR) were quick to play down the higher risk element introduced into the SIV program with one saying,

“…they [Chinese investors] like to keep their money so it won’t disappear, but they also understand that with high risks such as VCs come high returns.”

According to an AFR report, last year, Australian small-cap managers posted a remarkable 16.25 per cent (their equal-weighted average return) against the S&P/ASX Small Ordinaries 0.76 per cent loss, according to the S&P Dow Jones SPIVA Australia Scorecard.

But small cap fund managers are known to charge hefty fees which can strip 20% of any gains for their work in investigating hundreds of companies each year to find the most promising ones for their clients.

Minister Robb said the previous SIV framework had set the bar too low, with investment largely directed into passive investments such as government bonds and residential real estate schemes – areas that already attract large capital flows. Australia is looking for investors with a different mindset.

It however, still remains unclear how the government is going to deal with the ‘loan-back’ schemes of some SIV fund manager apart from Minister Robbs statement that, “Indirect investment in residential real estate through managed funds will now be restricted.”

Some analysts have pointed out such schemes were allowing SIV funds to be directed into the Australian property market with banks making it easy for investors to access their investment funds by way of loans against their SIV investments.

Source: Migration Alliance