In the lead up to the launch of Polen Capital’s second strategy being offered to Australian and New Zealand investors, the Polen Capital Global Small and Mid Cap Fund, I wanted to explore what is a global small and mid cap stock (herein SMID) and how this compares to some of the larger companies listed locally here in Australia.
As my colleague Scott Phillips recently wrote, MSCI (or Morgan Stanley Capital International) are one of the leading providers of indexing at the global market level across a number of geographies and segments. MSCI provide an index commonly used to encapsulate the Global SMID market, which is titled the MSCI ACWI (All Country World Index) SMID Cap Index.
So it come as no surprise that this is the benchmark for the soon to be launched Polen Capital Global Small and Mid Cap Fund. The index itself consists of 7,800 companies across 23 Developed Markets and 27 Emerging Markets, as at the end of August.[1] Across the 7,800 companies in this index, the average size by market capitalisation is US$2.7 billion. Also as at August end, the largest company in the index is US$49 billion; Marvel Technology listed in the U.S.
When comparing this to the top end of town globally, the appropriate comparison is the flagship MSCI ACWI Index. In fact, this is the benchmark used for the Polen Capital Global Growth Fund which we launched in Australia earlier this year. The index itself has 2,964 constituents across the same number of Developed and Emerging Markets as its Global SMID counterpart.[2]
Whilst a smaller number of names comprise this index, they are far greater in size by market capitalisation. The average company size here is more than eight times that of the MSCI ACWI SMID Cap Index, at US$23 billion. As at August end, the largest company in the index is a staggering US$2.5 trillion; Apple listed in the U.S.
How does this size differential compare across the two mentioned Polen Capital strategies?
If we look specifically to the U.S. domiciled version of the Polen Capital Global Small and Mid Cap Fund, the average holding size in the portfolio across the 30 names held was in fact not much under US$9 billion as at September end. Whilst in the Polen Capital Global Growth Fund the average holding size in the portfolio across its 23 global names was US$435 billion.[3] This is a substantial difference but makes sense given the Polen Capital Global SMID team are focussing on companies between US$1 and US$25 billion in market capitalisation.
So where do some of the famous Australian name’s fare on this global scale?
As of trading open Friday 8 August, the largest company listed on the ASX is the Commonwealth Bank of Australia with a market capitalisation of approximately AU$180 billion, or roughly US$131 billion. This is about two and a half times the size of the largest constituent in the MSCI ACWI SMID Cap Index, but is just over one eighth of the size of the average market cap of the top ten constituents that make up 16 per cent of the MSCI ACWI Index (where the average market cap here is approximately US$1 trillion).[4]
A few companies in Australia that are more reflective of the average market cap in the Global SMID category would actually be any of the following names: Metcash (ASX: MTS), AGL Energy Ltd (ASX: AGL), Breville Group Ltd (ASX: BRG) or ARB Corporation Ltd (ASX: ARB) which as of market opening Friday 8 August all possess a market cap of approximately AU$3.8 billion or US$2.8 billion.
Interestingly as at September end, the average market capitalisation in US dollar terms for The Montgomery Fund is US$22 billion, whilst in the Montgomery Small Companies Fund it is just under US$2 billion.[5]
If you would like to learn more about the Polen Capital Global Small and Mid Cap Fund, you can still pre-register your interest here: Express interest in Polen Capital Small and Mid Cap Fund
You can further read more about the calculation methodology behind the MSCI ACWI Index’s here.
[3] Source Montgomery/Polen Capital, as at 30 September 2021
[5] Source Montgomery, as at 30 September 2021