Spheria launches active ETF for small caps fund

Spheria Asset Management's Spheria Australian Smaller Companies Fund - Active ETF (ASX: SPHX) will be available on the ASX tomorrow, launching amid strong momentum shown across the broader ETF market despite volatility from the Middle East.

Spheria said SPHX is being launched in response to demand from investors, brokers and financial advisers for access to the fund's strategy, which will be available as an unlisted fund, active ETF, and LIC (ASX: SEC).

The unlisted fund has returned 3.2% over the past 12 months as at March 31, which underperformed the S&P/ASX Small Ordinaries Accumulation Index (13.7%) by over 10%.

However, over a decade horizon the fund returned 8.5% per annum (after fees), outperforming the index by 2.2% over the same period.

The portfolio typically consists of about 50 ASX smaller companies that generate "predictable free cash flows", constructed with the firm's bottom-up fundamental analysis.

Commenting, Spheria co-founder and co-portfolio manager Marcus Burns described the appeal of the asset class.

"Small caps can be the most lucrative part of the Australian share market, but it's also where capital can be quickly destroyed if investors try to pick winners without thorough fundamental analysis and industry research," Burns said.

"A portfolio of small caps with strong fundamentals, managed by a specialist investment team, is a sensible way to capture the potential upside of this part of the market, while ensuring capital is well protected."

Meanwhile, also co-founder and co-portfolio manager Matthew Booker added that the vast majority of ASX small and micro-cap stocks don't generate earnings or cashflow.

"Our investment process places free cashflow at its core," Booker said.

"By focusing on businesses with predictable free cashflow generation, strong balance sheets, and attractive valuations, we've established a track record of uncovering great businesses long before the crowd takes notice, while also delivering downside protection during periods of turbulence.

"In the current market, small-cap valuations are near multi-decade lows relative to large caps and many great small cap companies have been indiscriminately sold alongside speculative names. We see an exceptional opportunity to deliver long-term outperformance in the coming years."

Spheria currently has $2.1 billion in funds under management (FUM) on behalf of institutional investors, financial advisers, family offices, SMSFs, and retail investors.

The launch comes amid another significant month for the broader ETF market, despite heightened volatility and negative market movement due to the conflict in the Middle East.

According to Betashares' Australian ETF Review for March, top performers were dominated by defensive and counter-cyclical exposures, with sharp rally in crude oil lifting commodity-focused funds.

In March, the Australian ETF industry recorded "very strong" net inflows of $5.6 billion. Despite this, market movements pushed FUM down by $13.8 billion to $329.4 billion.

Strong flows to Australian equities were not enough to dislodge international equities as the leading asset class for the month. Fixed income took third highest, while cash exposures recorded their strongest inflows of the year, as some investors sought to take a more defensive stance, Betashares said.

Betashares investment strategist Tom Wickenden said the short-term impacts were obviously visible, but investors should consider longer-term implications as he alluded to Russia's invasion of Ukraine.

"Russia's invasion of Ukraine accelerated defence spending and European energy diversification. The Iran conflict is now doing the same for global energy self-sufficiency, while fracturing the US security umbrella and embedding geopolitics as a structural driver of asset prices rather than an episodic risk to be faded," he said.

"As a response investor flows have picked up in select hedges: energy producers, uranium, defence, critical minerals, and agricultural commodities."

Wickenden added that March marked the month where the Reserve Bank of Australia (RBA) hiked interest rate for the second time in 2026, the only major central banks to be actively hiking.

"For Australian equities this reinforces three key trends: the rotation toward income and value factors, pressure on rate sensitive sectors, and the same commodity shock that has complicated the RBA's path is generating meaningful earnings improvements for Australian energy and material companies," Wickenden said.