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Untapped Potential in Symmetry’s Small-Cap Portfolio

Report: Alternative Fixed Income

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Stockholm (HedgeNordic) – Small-cap-focused hedge fund Symmetry Invest has achieved an annualized return of around 20 percent over the past five years and over 18 percent since its inception in early 2013. Despite these strong returns from its long/short approach focused on smaller European stocks, founder and portfolio manager Andreas Aaen believes there is still untapped return potential in their concentrated portfolio of approximately 20 stocks.

“The portfolio of Symmetry Invest holds the greatest potential in the fund’s entire lifespan, according to our analyses,” notes Andreas Aaen, who launched the long/short equity fund with ‘friends and family’ capital in March 2013. “It can seem anxiety-provoking to make this claim when investors have enjoyed a cumulative return of 526 percent since the start in 2013 through the end of February this year,” he acknowledges. This substantial return surpasses the performance of the European small-cap index, which recorded a return of 96 percent over the same period.

“The portfolio of Symmetry Invest holds the greatest potential in the fund’s entire lifespan, according to our analyses.”

“There are important reasons for the great potential we observe,” emphasizes Aaen. “Overall, small-cap stocks have underperformed the large stocks over the past ten years or so. If we zoom out on the longer time horizons, small-cap stocks have historically outperformed the large stocks and we believe that trend will return.” Traditionally, small caps have commanded a premium over large caps, indicative of their higher growth prospects. However, after an extended period of underperformance, the small-cap premium has recently vanished for the first time in two decades.

“If we zoom out on the longer time horizons, small-cap stocks have historically outperformed the large stocks and we believe that trend will return.”

“Small-cap stocks in both Europe and the US have underperformed over the past ten years. Small cap stocks are today priced at a historically high ‘discount’ compared to the large stocks,” says Aaen. Currently, the MSCI World Small Cap Index trades at a forward price-to-earnings (P/E) ratio of 16.3x, notably lower than the MSCI World’s valuation of 18.3. The current cheapness partly stems from cyclical challenges, as small-cap stocks are typically more susceptible to factors such as rising interest rates, liquidity constraints, slowing economic growth, and broader market uncertainties.

Nonetheless, these cyclical headwinds will eventually dissipate, presenting an opportunity for investors in this segment of the stock market. “We believe that this spread should narrow in the coming years and will result in an increase in the prices of small-cap stocks,” notes Aaen. Such upticks in valuations often occur gradually, in waves, over several years. Since the beginning of November, for instance, Symmetry Invest’s portfolio has increased by approximately 20 percent. “This increase is more than justified after the companies have reported their earnings for the latest quarter – they were again very good and reassure us that they will develop strongly in the coming years,” concludes Aaen, who manages Symmetry Invest alongside portfolio managers Henrik Abrahamsson and Sebastian Savic.

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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