Why Smaller-Company Investing Deserves a Look Beyond the S&P/ASX 200 With Ryder Capital (ASX:RYD) and Salter Brothers Emerging Companies (ASX:SB2)

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Two listed Investment companies that both hunt among smaller ASX stocks ended August 2026 in very different places. Ryder Capital (ASX:RYD) reported pre-tax Net Tangible Assets (NTA) of A$2.2126 per share and a 12-month pre-tax NTA return of 25.19 per cent, with its shares at a 4.7 per cent discount. Salter Brothers Emerging Companies (ASX:SB2) reported a 12-month portfolio return of minus 16.12 per cent and a share price 32.6 per cent below post-tax NTA.

That contrast is why the pair is worth studying together. Smaller-company investing outside the S&P/ASX 200 can reward careful stock selection, but manager skill, portfolio concentration, fees and the market's discount to net assets can produce very different outcomes for shareholders.

What each company is and who runs it

Both are listed investment companies (LICs): closed-end companies that raise capital once, invest it, and trade on the ASX at a price that can differ from the value of their assets. That value is measured as NTA per share, the portfolio's worth minus liabilities, divided by shares on issue.

Ryder Capital's portfolio is run by Ryder Investment Management in Sydney, led by chairman and chief investment officer Peter Constable. Its August 2026 NTA report describes a "concentrated, high-conviction portfolio" of ASX small and micro-cap shares aiming for medium to longer-term capital growth. It measures itself against a hurdle of the RBA cash rate plus 4.25 per cent.

Salter Brothers Emerging Companies is managed by Salter Brothers Funds Management. Its FY26 annual report, released on 30 August 2026, sets a management fee of 1.50 per cent a year of gross portfolio value plus a 20 per cent performance fee on outperformance, subject to a high-water mark. It targets 20 to 36 Australian emerging companies, typically valued below A$500 million, and can hold unlisted businesses.

Ryder's concentrated bet has paid off lately

At 31 August, Ryder held 92.8 per cent of its A$182.75 million gross assets in equities and 7.2 per cent, or $13.16 million, in cash. Pre-tax NTA rose 9.32 per cent in August alone, which the manager attributed to gains in Count, BCI Minerals, Chrysos and Vitrafy, partly offset by a fall in SiteMinder.

The longer record is also strong on the company's own figures. Pre-tax NTA returned 33.23 per cent a year over three years and 12.96 per cent a year since inception, against hurdle returns of 8.38 per cent and 6.34 per cent. The company pays a fully Franked Dividend of 12.0 cents a year in quarterly instalments, most recently declared on 1 July 2026, and reports a distributable profits reserve of 72.0 cents per share, a buffer of retained profits available for future dividends.

A tougher year for Salter Brothers

SB2's FY26, the year to 30 June 2026, went the other way. The portfolio returned minus 12.66 per cent after management fees and before tax, while its Annual Report cites a 27.6 per cent gain for the S&P/ASX Emerging Companies Index. The company reported a loss after tax of $7.89 million, against a $3.15 million profit a year earlier, and no performance fee was earned. Management fees were still $1.27 million, which by our calculation equals about 1.7 per cent of the $74.72 million of net assets at 30 June, down from $86.78 million a year earlier.

Pre-tax NTA fell to $0.815 from $0.990 per share. The chair pointed to RBA tightening, weakness in software shares and geopolitical tension, while noting successful exits from unlisted holdings IPSI and Sphere. The August NTA update showed pre-tax NTA recovering to $0.839, with the largest holdings including Betr Entertainment, Alfabs Australia, Ai-Media Technologies, Wrkr and PYC Therapeutics. Listed shares made up 83.5 per cent of the portfolio, unlisted investments 11.7 per cent and cash 4.8 per cent. At 30 June, information technology (38.0 per cent) and industrials (31.6 per cent) were the largest sector weights.

The board has kept paying dividends. SB2 declared a final dividend of 2.0 cents, 50 per cent franked, payable on 22 October 2026, taking FY26 dividends to 4.0 cents. The annual report also shows 1,074,947 shares bought back for $781,901 during the year.

The discount changes what a dividend is worth

Headline yields on LICs can be distorted by share-price discounts, so we compared each company's annual dividend with its NTA as well as its share price, using the companies' own 31 August figures.

On NTA, the two payouts are fairly similar in size. On price, SB2's company-stated Yield of 6.56 per cent exceeds Ryder's 5.69 per cent, largely because its shares trade so far below asset value. A wide discount can therefore make a yield look richer without the underlying portfolio earning more.

Ryder's shares also traded about 5.6 per cent above its post-tax NTA of $1.9979, by our calculation. Post-tax NTA deducts estimated tax on unrealised gains, a deduction that grows as a portfolio rises.

Limits and risks in comparing these two

The return figures are not identical measures. Ryder quotes pre-tax NTA returns, while SB2 quotes portfolio returns after management fees and before tax, so neither is a total Shareholder return. Ryder's fee terms were not set out in its NTA report, and its FY26 annual report, lodged on 14 August 2026, could not be accessed for this article, so fee drag cannot be compared directly.

Both portfolios are heavily concentrated in small, sometimes Illiquid companies, and SB2's unlisted holdings are valued less frequently than listed shares. Discounts can persist or widen, and dividends depend on profits and franking credits; SB2's board says it intends to maintain dividends "subject to profitability and available franking credits".

Dates and indicators to watch

Ryder's notice of Annual General Meeting sets the meeting for 21 October 2026 in Sydney, with votes on the remuneration report and Peter Constable's re-election. SB2's final dividend is due the following day.

Beyond those dates, monthly NTA reports will show whether Ryder can hold its gains, whether SB2's recovery from its 30 June level continues, and whether SB2's discount narrows as buy-backs continue.