Small-cap companies generally carry a greater risk profile but often have the potential for higher returns than their large-cap counterparts. It is for this reason that quality research is important in an active and transparent market, allowing investors to make well-informed decisions and derive value from all market segments.
ASX Equity Research Scheme
ASX introduced the ASX Equity Research Scheme in 2012 to support the production of high-quality, independent research for under-covered ASX-listed small-cap companies.
The Scheme subsidises equity research on eligible companies over the financial year by partnering with a number of well-established research brokers working in the small- and mid-cap space, driving liquidity and awareness of these smaller stocks.
Since its inception, ASX has been facilitating access to these research reports to the wider market, and in 2018, ASX began to distribute all scheme reports via an email list that all investors can subscribe to here.
The Scheme covers approximately 100 listed companies per financial year that meet specific eligibility criteria, including a market capitalisation between $30 million and $1 billion and sitting outside the S&P/ASX 300. These criteria capture approximately 500 companies - almost 25 per cent of the total issuer population. Companies must also be covered by two or fewer analysts.
Research partners choose the companies they wish to cover for the year. Currently, 91 companies with a median market cap of $140 million are being covered in FY21. This accounts for roughly 20 per cent of the pool of eligible companies.
Susan Antoun, Head of Compliance and Operations at Taylor Collison, says: “The Scheme helps to keep independent research available in the market. Research broadens the information available to investors about companies and exposes them to companies they may not have been aware of – particularly small- to mid-cap stocks.
“In our case, the effect of the Scheme is to increase the number of companies we are able to cover each year, which is a benefit to investors and the companies involved.”