Datt Small Companies Fund March 2026 | Market Update

Why the oil price pullback may be short-lived

Australian small caps endured one of their weakest monthly performances in recent years during March 2026, as war-risk in the Middle East and threats to the Strait of Hormuz drove a sharp repricing in energy markets. The S&P/ASX Small Ordinaries fell -10.96% for the month, a significant drawdown driven overwhelmingly by sector rotation under geopolitical stress.

Against that backdrop, the Datt Small Companies Fund (Class A) returned -8.02%, outperforming its benchmark by 2.94%. This piece forms part of Datt Capital's ongoing market insights series.

Market Overview

March was defined by sharp sector rotation, rising volatility, and a market increasingly driven by geopolitical headlines and energy-security risk premia. Higher oil prices revived inflation fears and pressured valuation multiples across technology, consumer and industrial sectors, which lagged materially during the month.

Inflation remains a concern. The RBA raised the cash rate by a further 25 basis points, though Datt Capital anticipates a mixed inflation outlook ahead, driven by a weaker labour market that may partially offset the present energy shock stemming from the conflict in the Middle East.

The environment remains very beneficial for active, skilled stock pickers. Volatility continues to surface consistent opportunities, and the team continues to see many across sectors.

Performance Snapshot

The Datt Small Companies Fund (Class A) returned -8.02% in March, outperforming its benchmark by 2.94%. At month end, 80% of the Fund's capital was deployed.

• 1 month: -8.02%
• 3 months: -18.56%
• 6 months: -18.69%
• 1 year: 8.60%
• Since inception p.a.: 20.63%
• Since inception total: 59.80%

Read the full report: "Class A March 26 - Small Companies Fund Newsletter".

Since inception, the Fund has delivered strong cumulative and annualised returns, reflecting consistent value add versus the S&P/ASX Small Ordinaries Accumulation Index. Performance is reported after all fees and expenses and relates to Class A units. Inception date of the Fund is October 2023. Past performance is not an indicator of future performance.

Portfolio Insights

Performance this month was disappointing and was overwhelmingly driven by sector rotation under geopolitical stress. In response, a hard reset of the portfolio was undertaken, with a significant rotation into the energy sector.

Preferred energy exposures are in local mid-stream refineries and in LNG-derived commodities such as thermal coal, which stand to benefit from the significant physical disruption in energy commodities globally. These assets are now critically important in a world that is short of joules.

The portfolio remains diversified across sectors and holdings, and continues to hold elevated levels of cash. The portfolio held 23 positions at month end, with the top five positions accounting for 42% of the portfolio. Historically, in environments like this, the Fund has performed well, and the team expects selected exposures to outperform given their strategic importance in the current global energy landscape.

For context on how Datt Capital approaches positioning during periods of market stress, the sequence of returns risk analysis published earlier this year outlines the framework the team applies when managing drawdown risk alongside long-term return objectives.

Why It Matters for Investors

March reinforced why active management and decisive positioning matter in volatile markets. While the broader small-cap index fell nearly 11%, the Fund's repositioning into energy ahead of the worst of the selloff contributed to meaningful relative outperformance.

For investors in Australian small caps, the current environment is separating managers who can act decisively on research-led conviction from those who remain anchored to prior positioning. The energy security theme, and the structural vulnerability it has exposed in supply chains and corporate cost bases, is explored in depth in Datt Capital's recent piece on when safe havens stop working.

Outlook

The portfolio remains conservatively positioned given volatile market conditions. Elevated cash provides flexibility to allocate toward opportunities as they emerge, while the energy rotation positions the Fund to benefit from a geopolitical environment that is unlikely to resolve quickly.

The recent market volatility continues to surface consistent opportunities. The team remains focused on businesses where assets are strategically important, fundamentals are durable, and the risk-reward profile remains attractive at current valuations. As outlined in Datt Capital's analysis of identifying overlooked Australian small-cap opportunities, the current environment rewards research depth and patience over momentum.

Frequently Asked Questions

How did the Datt Small Companies Fund (Class A) perform in March 2026?

The Fund returned -8.02% in March 2026, outperforming its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, by 2.94%. The benchmark itself fell -10.96%, one of its weakest monthly performances in recent years. Performance is reported after all fees and expenses and relates to Class A units.

What drove performance in March 2026?

Performance was driven overwhelmingly by sector rotation under geopolitical stress, as war-risk in the Middle East and threats to the Strait of Hormuz caused a sharp repricing in energy markets. Technology, consumer and industrial sectors lagged as higher oil prices revived inflation fears and pressured valuation multiples.

How is the Datt Small Companies Fund positioned following March?

The Fund undertook a hard reset of the portfolio during March, with a significant rotation into energy. Preferred exposures include local mid-stream refineries and LNG-derived commodities such as thermal coal. The portfolio continues to hold elevated cash and remains diversified across 23 positions, with the top five accounting for 42% of the portfolio.

What is the Datt Small Companies Fund's (Class A) track record since inception?

Since inception in October 2023, the Fund has returned 20.63% per annum net of all fees to investors, with a total return of 59.80%. The benchmark has returned 11.40% per annum over the same period, representing a net value add of 9.23% per annum.

How does Datt Capital manage risk during volatile markets?

Datt Capital maintains elevated cash levels during periods of uncertainty, which provides flexibility to rotate capital toward high-conviction opportunities as they emerge. The team applies a disciplined, bottom-up research process to identify undervalued stocks in Australia that are often overlooked by the broader market, with a focus on durable fundamentals and attractive risk-reward profiles.