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Inside ACC's bold bet on the market's overlooked stocks

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  Published in Stocks and Investing on Wednesday, November 5th 2025 at 15:51 GMT by The New Zealand Herald
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ACC Eyes Small‑Cap Stocks as Its $50 b Portfolio Hits a New Milestone

ACC’s investment portfolio has just crossed the $50 billion mark, a milestone that has prompted the insurer’s asset‑management arm to shift its focus toward small‑cap equities. In a recent press release, ACC Asset Management outlined how the company’s growing investment mandate will now target smaller, higher‑growth companies to deliver alpha in an environment of rising rates and heightened valuation scrutiny.

A $50 b Portfolio, a New Growth Strategy

ACC’s portfolio, now valued at just over $50 billion, has grown steadily over the past decade. The asset‑management division, which manages pension funds, the ACC pension scheme and other institutional accounts, has traditionally been conservative, favouring large‑cap blue‑chip names and high‑grade bonds. That approach has delivered solid, stable returns, but the new strategy signals a willingness to take on more volatility for the prospect of higher returns.

The portfolio’s top 30 holdings now account for roughly 40 % of total value, leaving a substantial 60 % available for tactical allocation. The new small‑cap focus will concentrate on companies with market capitalisations under $1 billion, many of which are operating in niche sectors such as clean energy, technology, and consumer services.

Why Small Caps?

Several factors are driving ACC’s pivot:

• Interest‑Rate Sensitivity: The Reserve Bank of New Zealand has signalled further tightening, which tends to compress valuations of larger, dividend‑paying stocks more than smaller, growth‑oriented companies that are often priced on earnings‑growth expectations rather than dividend yield.

• Valuation Discipline: The larger, more visible companies are now trading at premium multiples. Small‑cap stocks, by contrast, tend to trade at lower price‑to‑earnings and price‑to‑sales ratios, offering greater margin for error.

• Portfolio Diversification: Small caps bring different risk‑return characteristics, potentially smoothing the overall portfolio’s volatility profile. By allocating a portion to smaller, high‑growth names, ACC can better hedge against macro‑economic shocks that disproportionately affect large‑cap stocks.

• Market Opportunity: Analysts have noted that historically, small‑cap stocks have delivered out‑performance during periods of market volatility. For example, the NZX Small‑Cap Index has out‑performed the NZX 50 over the past decade, despite being far more volatile.

Target Sectors and Notable Holdings

The asset‑management team identified several sectors that appear most promising for small‑cap investing. Key themes include:

1. Renewable Energy & Clean Tech – Companies such as SolarTech NZ and GreenWave Energy are building renewable infrastructure projects across the country. Their strong growth potential and supportive policy environment make them attractive.

2. Health & Biotech – With an ageing population, firms like HealthPlus NZ are developing home‑care technologies and medical devices. These businesses benefit from demographic trends and increasing health‑care expenditure.

3. Fintech & Digital Payments – The rise of digital payment solutions has spurred growth for companies like PayLink NZ and SecurePay, which provide back‑end processing for banks and merchants.

4. Consumer & Lifestyle – Small‑cap names such as EcoThreads, a sustainable fashion retailer, are capitalising on the growing consumer demand for ethical products.

ACC’s portfolio manager, Megan Lacey, highlighted that the firm will focus on companies that demonstrate strong cash‑flow generation, scalable business models, and a clear path to profitability. “We’re not looking for a quick win,” Lacey said. “Our goal is to identify durable, high‑growth businesses that can withstand market cycles.”

Risk Management and Oversight

ACC remains committed to rigorous risk oversight. The firm’s risk committee has outlined several safeguards:

• Liquidity Thresholds – No single small‑cap holding will exceed 3 % of total portfolio value, ensuring liquidity even in turbulent markets.

• Stress‑Testing – The portfolio will undergo scenario analysis to assess the impact of extreme interest‑rate moves, supply‑chain disruptions, and geopolitical shocks.

• Active Monitoring – The research team will conduct quarterly reviews of each small‑cap investment, focusing on earnings guidance, balance‑sheet health, and market sentiment.

The asset‑management division’s compliance team will also liaise with ACC’s regulatory advisers to ensure all investments remain within the risk appetite and ethical guidelines of the insurer’s stakeholders.

Investor Reactions

The move has been well‑received by ACC’s pension beneficiaries and institutional investors. The ACC Pension Trust’s chief financial officer, John Ritchie, commented that the portfolio’s exposure to small caps is a “natural evolution” given the current market dynamics. “The additional upside potential outweighs the increased volatility, especially since we are investing in a diversified basket of companies,” Ritchie said.

Analysts from InvestTech NZ have echoed this sentiment, noting that the shift aligns ACC with global best practices. “Asset managers worldwide are turning to small caps for alpha, and ACC’s disciplined approach positions it well to capture these opportunities,” said Laura Patel, senior analyst at InvestTech.

Looking Ahead

ACC plans to roll out the small‑cap strategy over the next 12–18 months, with a phased approach to maintain portfolio stability. The firm will also engage with its advisory board to refine the selection criteria and to monitor market developments that could impact small‑cap valuations.

With a portfolio now exceeding $50 billion and a clear strategic pivot, ACC is poised to become a more dynamic player in New Zealand’s investment landscape. By focusing on high‑growth, undervalued small‑cap stocks, the insurer aims to deliver superior returns for its pension beneficiaries while maintaining a prudent risk profile.