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24 January 2025
With this week’s official dawning of the Trump Era part deux, there’s plenty of conjecture about the impact on local and global economies and stock markets. Trump’s first White House stint showed that what Donald says and what Donald does can be quite different, but Monday’s first-day flood of executive orders shows he means business. While the commentary centres on large tech stocks, cryptocurrencies and ‘drill baby drill’ explorers, Australian fund Savana Asset Management suggests US small caps as the ideal way to surf the business-friendly Trump Wave.
Small-cap US value stocks surged 5.27% the day after Trump’s election victory – the highest gain for any sector. Likely tailwinds include tax cuts, deregulation and – arguably – lower interest rates.
“Generally, small caps are more sensitive to changes in economic conditions and economic policies,” Savana’s associate director Samuel Atkinson says.
In a case of serendipitous timing Savana last November launched its US Small Caps Active Exchange Traded Fund (ASX code: SVNP), to trawl for hidden gems among thousands of New York and Nasdaq-listed small caps. Atkinson points to a gaping valuation gap between the small and big caps, with the former trading on an average earnings multiple of 15 times compared with 22 times for the latter. The Trump Effect aside, small caps have outperformed their larger brethren by an 2.85% a year on average since 1927. This week, Trump announced a $US500 billion fund, Stargate, to keep artificial intelligence in America.
Aptly, Savana’s fund decisions are made entirely by algorithms, which remove the subjective biases afflicting humanoid investors (such as whether they love or loathe Trump). The computers are loaded with basic data on every investible company – those above the firm’s minimum cut-off of a US$500 million market cap – and the algos take it from there.
“Whereas humans are subject to myriad cognitive and emotional biases in their decision-making, our algorithms are disciplined and fearless, ensuring unmatched precision in capitalising on mispriced assets,” Atkinson says.
Quirkily, the fund was not intended to be confined to the small caps – but that’s where the algos sniffed the best value. The ETF will invest in any sector and – like Trump himself – is not weighed down by ESG mandates (yep, ‘naughty’ companies are allowed). The fund currently has an initial $3.9 million across 30 investments, which can be expanded to 50.
Ahead of the launch, the firm tested out the algos with hypothetical paper trading over two years. The exercise achieved an annualised total return of 42% – 25% outperformance relative to the benchmark S&P total return index. The ‘real’ fund had early success with the quixotic Nebius, a Russian data centre and chip design company that re-domiciled to the Netherlands and listed on the Nasdaq. The fund invested in Nebius in early November last year, but flipped the stake in early January for a 61% gain after the algos “ruthlessly” deemed the shares as overcooked.
One potential spoiler is the prospect of Trump’s policies (notably tax cuts and tariffs) fuelling inflation, resulting in the need for higher interest rates. Small caps tend to be highly geared, or their valuation is based on inflation-adjusted assumptions of future earnings. Atkinson notes that Trump claimed his first term was a success because his favoured barometer – the stock market – fared well (as it did in the Biden era, just sayin’).
“Trump will be reluctant to impose any policies that are going to compromise the viability of the stock market,” he says.
This means that if tariffs spark inflation, even Trump’s signature policy will be watered down. Given Savana’s machine-driven approach is scaleable and replicable, the firm plans to launch local and global small cap ETFs later this year.
By Tim Boreham
With this week’s official dawning of the Trump Era part deux, there’s plenty of conjecture about the impact on local and global economies and stock markets. Trump’s first White House stint showed that what Donald says and what Donald does can be quite different, but Monday’s first-day flood of executive orders shows he means business. While the commentary centres on large tech stocks, cryptocurrencies and ‘drill baby drill’ explorers, Australian fund Savana Asset Management suggests US small caps as the ideal way to surf the business-friendly Trump Wave.
Small-cap US value stocks surged 5.27% the day after Trump’s election victory – the highest gain for any sector. Likely tailwinds include tax cuts, deregulation and – arguably – lower interest rates.
“Generally, small caps are more sensitive to changes in economic conditions and economic policies,” Savana’s associate director Samuel Atkinson says.
In a case of serendipitous timing Savana last November launched its US Small Caps Active Exchange Traded Fund (ASX code: SVNP), to trawl for hidden gems among thousands of New York and Nasdaq-listed small caps. Atkinson points to a gaping valuation gap between the small and big caps, with the former trading on an average earnings multiple of 15 times compared with 22 times for the latter. The Trump Effect aside, small caps have outperformed their larger brethren by an 2.85% a year on average since 1927. This week, Trump announced a $US500 billion fund, Stargate, to keep artificial intelligence in America.
Aptly, Savana’s fund decisions are made entirely by algorithms, which remove the subjective biases afflicting humanoid investors (such as whether they love or loathe Trump). The computers are loaded with basic data on every investible company – those above the firm’s minimum cut-off of a US$500 million market cap – and the algos take it from there.
“Whereas humans are subject to myriad cognitive and emotional biases in their decision-making, our algorithms are disciplined and fearless, ensuring unmatched precision in capitalising on mispriced assets,” Atkinson says.
Quirkily, the fund was not intended to be confined to the small caps – but that’s where the algos sniffed the best value. The ETF will invest in any sector and – like Trump himself – is not weighed down by ESG mandates (yep, ‘naughty’ companies are allowed). The fund currently has an initial $3.9 million across 30 investments, which can be expanded to 50.
Ahead of the launch, the firm tested out the algos with hypothetical paper trading over two years. The exercise achieved an annualised total return of 42% – 25% outperformance relative to the benchmark S&P total return index. The ‘real’ fund had early success with the quixotic Nebius, a Russian data centre and chip design company that re-domiciled to the Netherlands and listed on the Nasdaq. The fund invested in Nebius in early November last year, but flipped the stake in early January for a 61% gain after the algos “ruthlessly” deemed the shares as overcooked.
One potential spoiler is the prospect of Trump’s policies (notably tax cuts and tariffs) fuelling inflation, resulting in the need for higher interest rates. Small caps tend to be highly geared, or their valuation is based on inflation-adjusted assumptions of future earnings. Atkinson notes that Trump claimed his first term was a success because his favoured barometer – the stock market – fared well (as it did in the Biden era, just sayin’).
“Trump will be reluctant to impose any policies that are going to compromise the viability of the stock market,” he says.
This means that if tariffs spark inflation, even Trump’s signature policy will be watered down. Given Savana’s machine-driven approach is scaleable and replicable, the firm plans to launch local and global small cap ETFs later this year.
By Tim Boreham
With this week’s official dawning of the Trump Era part deux, there’s plenty of conjecture about the impact on local and global economies and stock markets. Trump’s first White House stint showed that what Donald says and what Donald does can be quite different, but Monday’s first-day flood of executive orders shows he means business. While the commentary centres on large tech stocks, cryptocurrencies and ‘drill baby drill’ explorers, Australian fund Savana Asset Management suggests US small caps as the ideal way to surf the business-friendly Trump Wave.
Small-cap US value stocks surged 5.27% the day after Trump’s election victory – the highest gain for any sector. Likely tailwinds include tax cuts, deregulation and – arguably – lower interest rates.
“Generally, small caps are more sensitive to changes in economic conditions and economic policies,” Savana’s associate director Samuel Atkinson says.
In a case of serendipitous timing Savana last November launched its US Small Caps Active Exchange Traded Fund (ASX code: SVNP), to trawl for hidden gems among thousands of New York and Nasdaq-listed small caps. Atkinson points to a gaping valuation gap between the small and big caps, with the former trading on an average earnings multiple of 15 times compared with 22 times for the latter. The Trump Effect aside, small caps have outperformed their larger brethren by an 2.85% a year on average since 1927. This week, Trump announced a $US500 billion fund, Stargate, to keep artificial intelligence in America.
Aptly, Savana’s fund decisions are made entirely by algorithms, which remove the subjective biases afflicting humanoid investors (such as whether they love or loathe Trump). The computers are loaded with basic data on every investible company – those above the firm’s minimum cut-off of a US$500 million market cap – and the algos take it from there.
“Whereas humans are subject to myriad cognitive and emotional biases in their decision-making, our algorithms are disciplined and fearless, ensuring unmatched precision in capitalising on mispriced assets,” Atkinson says.
Quirkily, the fund was not intended to be confined to the small caps – but that’s where the algos sniffed the best value. The ETF will invest in any sector and – like Trump himself – is not weighed down by ESG mandates (yep, ‘naughty’ companies are allowed). The fund currently has an initial $3.9 million across 30 investments, which can be expanded to 50.
Ahead of the launch, the firm tested out the algos with hypothetical paper trading over two years. The exercise achieved an annualised total return of 42% – 25% outperformance relative to the benchmark S&P total return index. The ‘real’ fund had early success with the quixotic Nebius, a Russian data centre and chip design company that re-domiciled to the Netherlands and listed on the Nasdaq. The fund invested in Nebius in early November last year, but flipped the stake in early January for a 61% gain after the algos “ruthlessly” deemed the shares as overcooked.
One potential spoiler is the prospect of Trump’s policies (notably tax cuts and tariffs) fuelling inflation, resulting in the need for higher interest rates. Small caps tend to be highly geared, or their valuation is based on inflation-adjusted assumptions of future earnings. Atkinson notes that Trump claimed his first term was a success because his favoured barometer – the stock market – fared well (as it did in the Biden era, just sayin’).
“Trump will be reluctant to impose any policies that are going to compromise the viability of the stock market,” he says.
This means that if tariffs spark inflation, even Trump’s signature policy will be watered down. Given Savana’s machine-driven approach is scaleable and replicable, the firm plans to launch local and global small cap ETFs later this year.
By Tim Boreham
IMPORTANT DISCLAIMER:
This material has been prepared by Savana Asset Management Pty Ltd (ABN 79 662 088 904) (Savana). Savana is a corporate authorised representative of Fat Prophets Pty Ltd (ABN 62 094 448 549 AFS Licence No. 229183) (Fat Prophets), CAR Auth No. 1308949. The Savana US Small Caps Active ETF (ASX: SVNP) (ARSN 649 028 722) is issued by K2 Asset Management Limited (K2) ABN 95 085 445 094, AFS Licence No 244393, a wholly owned subsidiary of K2 Asset Management Holdings Limited (ABN 59 124 636 782). The information contained in this document is produced in good faith and does not constitute any representation or offer by K2, Savana or Fat Prophets.
This material is for information purposes only and has been prepared for both retail and wholesale investors. It is not an offer or a recommendation to invest. No representation is made as to future performance or volatility of the investment, and there is no guarantee that the investment objectives or strategy will be successful. Any forward-looking statements, opinions and estimates are based on assumptions and contingencies which are subject to change without notice. No representations or warranties, expressed or implied, are made as to the accuracy or completeness of the information contained in this document. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available to Savana. Persons should rely solely upon their own investigations in respect of the subject matter discussed. To the maximum extent permitted by law, all liability in reliance on this document is expressly disclaimed.
This material may not be reproduced, distributed or published, in whole or in part, without the prior approval of Savana. There are risks associated with an investment in the Savana US Small Caps Active ETF (SVNP), including active management risk, market risk, currency risk, concentration risk, liquidity risk and model risk. Investment values may rise and fall, and past performance is not indicative of future performance.This document has not been prepared taking into account your objectives, financial situation or needs. An investment in SVNP should be considered as part of a broader portfolio, having regard to your individual objectives, financial situation and needs, including your tolerance for risk.
Before making an investment decision, you should consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD), available at www.savana.ai.
