Datt Small Companies Fund: Strong FY26 Returns Amid Rotation

10 October 2025: Datt Capital has posted another strong month for the Datt Small Companies Fund underscoring the Fund’s founding thesis that small companies can outperform large caps over the cycle.

“That outperformance is best captured by a high-conviction, bottom-up stock-picking process that allows for the flexibility to hold cash when opportunities are scarce,” says Emanuel Datt, CIO of Datt Capital.

Momentum in small caps is now visible at the index level. Independent market data show that the S&P/ASX Small Ordinaries has staged a multi-month comeback in 2025, rising ~24% year-to-date and outperforming the ASX 200 by ~13.8%, one of the most significant gaps in the past decade. Some market analysts suggest that this may mark the start of a multi-year catch-up phase for smaller companies, following several years of underperformance.

Against that backdrop, the Fund returned 10.21% (net) in September, bringing its FY26 year-to-date return to 26.42% (net) as of 30 September 2025. Over the past year, the Fund has returned 61.83% (net); since its inception in October 2023, cumulative returns stand at 98.00% (net), or 40.68% per annum (after all fees and expenses).

In September, the market environment was supportive of small caps, with the Small Ordinaries Accumulation Index rising 3.44%, while the ASX 200 fell 1.4%, highlighting the rotation underway.

Datt says, “We built the Fund for exactly this moment. The combination of an expected favourable multi-year small-cap cycle and disciplined stock selection can produce outsized, idiosyncratic outcomes that don’t simply mirror equity beta. Our job is to compound those advantages with a portfolio that can be concentrated when conviction is high and patient when it isn’t.”

“There are three reasons why the Fund provides diversification across multiple portfolios. Firstly, it has low correlation to broad market beta. Our investable universe sits outside the ASX 100, and the portfolio is intentionally concentrated (~15–25 holdings). This structure reduces index overlap and mitigates beta-like behaviour. Since its inception, the Fund’s correlation to the Australian Small-Cap Index is ~0.01, indicating a return stream largely driven by stock-specific factors rather than market direction.

“Secondly, the Fund has a low overlap with other small-cap managers. The management team’s independent, research-led process (and the ability to hold meaningful cash) means the Fund does not need to be fully invested across cycles or index-aware, creating differentiated performance versus its peers.

“And finally, we look at idiosyncratic drivers, not just factors. The Fund is built from the bottom up, security by security with selective, tactical exposures made to improve the portfolio’s risk-return. For example, precious-metals producers are in a supportive macro backdrop today. The environment

remains favourable for active stock pickers and precious and industrial commodities appear appealing.”

“In a diversified equity program, adding a low-correlating sleeve, such as the Datt Small Companies Fund, can improve resilience when traditional equity exposures move in tandem, or when other small-cap funds behave similarly to the index.,” he notes.

“Financial advisers, institutional and family office investors typically add the Fund as a 5–10% sleeve within Australian equities allocation (or as a discrete small-cap allocation) to reduce portfolio correlation and increase the likelihood that stock-specific alpha emerges at the total portfolio level.”

Fund snapshot

• Universe: small and micro-cap Australian equities ex ASX100, an under-researched segment with more idiosyncratic growth drivers than the large-cap complex.
• Concentration & active share: a 15–25 name portfolio with position limits and high active share by design.
• Cash flexibility: The Fund has the authority to hold meaningful cash as a non-correlated buffer in tougher periods while preserving option value for new ideas; at September month-end, cash represented ~17% of the portfolio, highlighting that flexibility in practice.

Portfolio design that keeps correlation low

This Fund is also available through the following investment platforms:

• HUB24 IDPS
• Mason Stevens IDPS
• Netwealth IDPS

More: https://www.datt.com.au/datt-small-companies-fund

Download the full PDF: Datt Small Companies Fund delivers strong financial year-to-date returns and low correlation diversification as Australia’s small-cap cycle turns.