Ned Bell, chief investment officer and portfolio manager at Australia-based Bell Asset Management, highlights the benefits of investing in global small and mid-cap equities in 2023, after a tough couple of years. 

Despite the challenges, Ned Bell, CIO of Bell Asset Management, is optimistic about the outlook for global small and mid-cap equities this year.

“We think that now is a very good time to allocate to global small and mid-cap stocks this year. We are a quality investor at reasonable prices and invest in a range of sectors, like healthcare, industrials, consumer discretionary and consumer staples. We skew towards North America and Western Europe, and not much exposure in APAC and limited exposure in Japan. We only invest in developed markets in our strategy, with no exposure in emerging markets. We struggle with emerging market firms to get over that quality hurdle,” he said. 

“The types of companies we invest in include Moncler in the luxury space. In the US, we invest in Tractor Supply – a US consumer discretionary company – which has a fantastic growth profile. It did well during Covid and expanded during that time,” Bell continued. 

“It’s been a good period for the US, given where markets are now. We are still finding opportunities in the small and mid-cap space, which has outperformed for the past 25 years, though it has lagged in the past few years,” he added.

“During Covid, small and mid-cap businesses took a huge amount of cost out of their business. They acted quickly and their margins are the highest they have been for the past 10 years,” he said. 

“We got some great buying opportunities during Covid. We picked up some healthcare names during Covid. Names that we liked pre-Covid but couldn’t afford. Our firms held up well and improved their earnings. Their positions got stronger,” Bell added.

“We think there are very strong arguments for quality stocks,” he said. “In times of high inflation, our analysis showed us over the last years, the MSCI quality factor has outperformed by 7.4 per cent. We feel it’s a good time to go back to quality stocks, in view of the high interest rates,” he continued. 

“We think that there will be a shallow recession globally. Markets will be more volatile. We are cautiously optimistic about the economic outlook. We are less optimistic about emerging markets, particularly China, as we struggle to see growth there,” he continued. 

“We see mutual benefits in our partnership with Switzerland's Union Bancaire Privée who we have been working with over the past three years. We helped to introduce them to the institutional market in Australia and they are making some great headway in the Australian institutional market. In return, they are helping to distribute our global small and mid-cap capabilities though their private banking and institutional channels in Europe, APAC and the Middle East. We are working well with them in Asia and Europe,” he said.

Bell manages the UBAM – Bell Global SMID Cap Equity Fund, an open-ended fund incorporated in Luxembourg, which aims to provide investors with a diversified portfolio. Top 10 holdings include consumer staples Kroger and Church & Dwight as well as Checkpoint Software, ICON and Hoya Group.    

“We educate investors to allocate to small and mid-caps. It’s so inexpensive now so it’s a good investment in the long-term. We’ve seen earnings performance become stronger and more profitable and inexpensive,” Bell said. 

“After Covid, they are stronger, cheaper and we think there is a lot of money to be made there. By the second half of next year, markets will be pricing it in. But we can’t wait until then. We are more optimistic about this asset class than we have ever been,” he concluded.