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Ex-20 investment strategies

March 2016

Antares Equities

Australian equity Ex-20 strategies offer the liquidity of the larger part of the market, combined with the longer-term growth potential of smaller companies. They are designed to be blended with existing large company investments to provide some genuine diversification. They target where the economy is going, not just where it has been.

The information contained within this article is intended as factual information and is not intended to imply any recommendation or opinion about a financial product.

What is an "Ex-20" strategy?

An “Ex-20” strategy is one that invests in companies listed on the Australian Securities Exchange (ASX) that are outside the S&P/ ASX 20 Index (ASX 20). In other words, it excludes the very largest companies listed on the Australian share market.

Why invest in an Ex-20 strategy?

There are three reasons why Antares believes there’s a strong case for an “Ex-20” strategy:

  • differentiation;
  • diversification;
  • growth and disruption – aggressive not defensive holdings.

Let us now spend a little time discussing each of these points.


The Australian share market is quite unusual by global standards as a relatively small number of very large companies dominate our market by their size. The following chart gives you an idea of how the top 10 companies by market capitalisation tend to make up over 50% of the investable universe in terms of dollars.

Chart 1: Illustration of the ASX universe by market capitalisation

Source: Antares, ASX. For illustrative purposes only to show general market structures over time.


Why is this important? Well, it means that while investors are expecting active management of their portfolios, fund managers can be forced to deploy large chunks of capital into “passive” positions determined more by a company’s size than its expected return.

This makes it quite difficult for investors to differentiate returns between funds. As is well-known, most Australian share strategies measure success in terms of differentiating their returns against an index, typically the S&P/ASX 200 Accumulation Index (ASX 200). This provides the “average” return generated by the market over a given period, but as shown above, this index is dominated by a few very large companies.

Chart 2 demonstrates the investable universe, excluding the top 20 stocks, is less concentrated when it comes to size. Fund managers can invest far less in passive positions demanded by very large unequal weightings. Hence management of an Ex-20 strategy is far more “active” and so reliant on the skill of Antares’ investment team.

Chart 2: Illustration of the ASX 200 ex 20 universe by market capitalisation

Source: Antares, ASX. For illustrative purposes only to show general market structures over time.


For this reason, we believe that an Ex-20 strategy offers genuine differentiation of returns than a portfolio of large companies.



We all agree that diversification is a good thing for investing. It helps smooth out the bumps and provides access to growing returns while reducing the risk of an industry or company going bad. An interesting aspect of the ASX 20 is the concentration of particular industries included in it.

At present, the ASX 20 includes 4 banks, 3 insurance companies, 2 mining companies, 2 supermarkets and a giant telecommunications company. It is heavily weighted to financial services, as well as incumbent monopolies or duopolies.

Hence a mainstream ASX 200 fund will inadvertently expose itself to a high level of correlated risks, driven by the weighting to the top 20. For instance, financial services, which constitute 7 of the top 20 stocks, are heavily regulated, so government action can hugely impact a large proportion of the market. Indeed, banks have recently come under heavy selling pressure as regulators force them to hold more capital on their balance sheets to protect them from shocks such as those seen in the GFC.

Thus far, we have focused on risks associated with the ASX 20. By contrast, the Ex-20 Index is not nearly as concentrated in its exposure, and offers far more diversification than a conventional Australian equities fund. However, to this point, we have ignored a major benefit of the Ex 20 space - growth.


Growth and disruption

How do large companies grow? How do they make that growth meaningful to their investors? These are important questions for investors in equity markets because it is growth that is being sought. Investors take more risk in exchange for potentially better returns over time.

Companies rise and fall - that is the nature of our system. As is well-known, only General Electric (GE) has been in the Dow Jones Industrial Index since its inception in 1896. Over time, incumbents are challenged. Some rise to the challenge, others fall by the wayside.

It is in the Ex-20 space that an investor is most likely to find the challengers to today’s incumbents. Although some will fail, there are many examples of success. Over the past 5 years would an investor have done better in Fairfax Media (FXJ) or the companies that challenged FXJ’s once dominant position in classified advertising?

As the following chart highlights, since 2008, revenues at FXJ have fallen by just over A$1bn. The decline is due to the loss of FXJ’s dominant position in classified advertising, the so-called “rivers of gold.” FXJ, like most large incumbent businesses, did not recognise the threat to its business model. In this case, the internet.

Chart 3: Classified case study - revenue

Source: Antares, Company data. Revenue as at compay’s financial year, indicated.

Its three dominant classifieds categories: car sales, job ads and real estate, were attacked by new challengers with purely on line advertising models. Not only were these adverts cheaper to produce, they provided more scope for content, and better accessibility for those looking to buy the product. In addition, accessibility was free.

As we can see from Chart 3, these challengers -, REA Group (real estate) and Seek - had cumulative revenues equivalent to the revenue lost in the same period by FXJ. Hence, now all three are successful businesses while FXJ is still looking to understand its role in the world.

The obvious outcome of this revenue swap is to be seen in the share price performance of all four businesses, in Chart 4. While FXJ shares have fallen consistently, all three online classified providers have delivered significantly positive results. Not only was revenue exchanged, so has shareholder value.

Chart 4: Classified media share prices

Source: Bloomberg

Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any targeted returns described.


This is the exciting thing about the Ex-20 universe. It contains the companies most likely to be the leaders of the future. They tend to take market share, not have to defend it. And the share market will always reward companies that take market share, and punish those that lose it.

On average over recent years the returns of smaller companies have been outstripped by those available from larger ones. And the potential for larger losses was greater in Ex-20 companies. However, with quality research and skilled stock picking, potential returns from the Ex-20 space were higher than for the mainstream ASX 20.

The Antares Ex-20 strategy

We designed the Antares Ex-20 Australian Equities Model Portfolio to be blended with existing large company investments to provide some genuine diversification and long-term growth potential.

We also believe our skill at researching and selecting a portfolio of ex-20 companies can result in outperformance of the S&P/ASX 200 Accumulation Index, excluding the S&P/ASX 20 Leaders Accumulation Index.

You can invest in the Antares Ex-20 Australian Equities Model Portfolio by investing in the Antares Direct Separately Managed Accounts (the SMA).

Read the full story

Learn more about the Antares Ex-20 Australian Equities Model Portfolio


Important information:

This information is provided by Antares Capital Partners Ltd (ABN 85 066 081 114) as responsible entity a member of the National Australia Bank group of companies, 105–153 Miller Street, North Sydney 2060.

This information may constitute general advice. It has been prepared without taking account of an investor’s objectives, financial situation or needs and because of that an investor should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs. We recommend you consult with your financial adviser, who can help you determine how best to achieve your financial goals and whether investing in a fund is appropriate for you.

You should obtain a Product Disclosure Statement (PDS) for the SMA , issued by Antares Capital Partners Ltd, and consider it before making any decision about the product. A copy of the PDS is available upon request by phoning the call centre on 1800 671 849 or on our website at

Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any targeted returns described.

An investment in any financial product offered by Antares Capital Partners Ltd is not a deposit with or liability of, and is not guaranteed by National Australia Bank Limited (ABN 12 004 044 937) or its subsidiaries (NAB).

While Antares Capital Partners Ltd has taken all reasonable care in producing this communication, subsequent changes in circumstances may occur and impact on its accuracy.

Antares Capital Partners Ltd relies on third parties to provide certain information and is not responsible for its accuracy.  Antares Capital Partners Ltd is not liable for any loss arising from a person relying on information provided by third parties.