Invest
What do small-caps and nuclear war have in common?
The “acceleration” in the rate of small-caps outperforming large-caps has coincided with the impending threat of nuclear war, prompting an ETF provider to ask: Why?
What do small-caps and nuclear war have in common?
The “acceleration” in the rate of small-caps outperforming large-caps has coincided with the impending threat of nuclear war, prompting an ETF provider to ask: Why?

According to BetaShares’ Thong Nguyen, there are two factors that could have contributed to small-caps outperforming large since mid-March this year.
Mr Nguyen, referencing the ratio of the S&P/ASX 100 Index (showing large-caps) and the S&P/ASX Small Ordinaries Index (showing small-caps) which showed small-caps out performing large, noted that small-caps’ performance was slightly contrary to “modern portfolio theory”.
That theory argues that there are two types of risk in stock returns: systematic or market risks, or unsystematic or stock specific risks.
Systematic risks see investors try to add more variety of assets to their portfolio and diversify, while unsystematic risks represent a “stocks return that is not correlated with general market movements”.

“In recent times, global tensions have been rising particularly due to the resumption of North Korean missile and bomb tests, which have unnerved markets. In light of this, one may reasonably expect that a diversified basket of Australian large companies would outperform and be less risky than a diversified basket of smaller companies. One may well have this view as typically smaller companies tend to exhibit higher levels of volatility and are generally perceived as riskier investments.”
“However, in the current market environment, has this in fact been the case?”
Mr Nguyen argued that is hasn’t.
The first factor impacting the performance of small and large-caps, according to Mr Nguyen, was “typical institutional investor behaviour”.
He explained: “In the current environment, institutions and fund managers may be a bit nervous about the macro environment, and in particular events like war.
“History suggests such events may well have short-term effects on the markets but less so in the longer-term. Naturally the most efficient way to de-risk large institutional portfolios quickly with the least amount of market impact is to sell the most liquid assets, being larger companies,” he continued.
He predicted that this behaviour will apply pressure to the performance and pricing of large cap stocks. This pressure would be “relative to small cap stocks, which generally receive less attention in these situations”.
The second factor impacting small-caps performance is the strong AUD as compared to the USD. Noting that the AUD has been valued at more than 80 US cents recently, he said: “A strong Aussie dollar is good for importers, but not so good for exporters as it makes their products less competitive in the global markets.
“Typically, larger companies are more exposed to fluctuations in exchange rates, while smaller companies rely more heavily on local sales.”
Mr Nguyen said that should tensions increase and reinforce the threat of nuclear conflict, together with a strong AUD, small-caps would “likely continue to outperform large-caps in this environment, at least in the short term”.

Mutual funds
EIF and NATO Innovation Fund partner to boost European defence and security investment
The European Investment Fund (EIF) and NATO Innovation Fund (NIF) have signed a Memorandum of Understanding to collaborate on expanding funding for start-ups, SMEs and midcaps in Europe's defence, ...Read more

Mutual funds
Fund managers brace for regulatory challenges as outsourcing and innovation take centre stage
As regulatory complexities continue to mount, fund managers are increasingly turning to outsourcing and prioritising innovation to navigate the challenging landscape, according to a new study by Carne ...Read more

Mutual funds
New report highlights rising anti-money laundering risks and need for three lines of defence
A new report published by Ocorian and Newgate Compliance has warned that rising anti-money laundering (AML) risks are increasing the pressure for alternative fund managers to have three lines of ...Read more

Mutual funds
Centuria capitalises on non-core diversities with a new $50 million fund
The Centuria Capital Group, an established Australasian real estate fund manager, has successfully raised $50 million in equity from its network of Australian wholesale investors. Read more

Mutual funds
New study shows fund managers are eyeing overseas markets for capital growth
A recent study conducted by Carne Group, a prominent figure in the fund regulation and governance solutions sector for the asset management industry, has highlighted a significant shift in the ...Read more

Mutual funds
Equity Trustees reports robust performance with significant revenue and profit growth
Equity Trustees has witnessed a noteworthy advancement in its financial standing, marked by substantial increases in revenue and funds under management, administration, and supervision (FUMAS), ...Read more

Mutual funds
Micro-investing: Is it worth it?
Investing can be complex. It involves making financial decisions on how your money is going to be invested and managed over time, as well as figuring out the right strategy for each investment. There ...Read more

Mutual funds
RAIZ v Spaceship: Which is better value?
Raiz and Spaceship have become the two biggest apps in the micro-investing space, but which offers a better deal for Aussie investors looking for a hands-off savings strategy? Read more

Mutual funds
EIF and NATO Innovation Fund partner to boost European defence and security investment
The European Investment Fund (EIF) and NATO Innovation Fund (NIF) have signed a Memorandum of Understanding to collaborate on expanding funding for start-ups, SMEs and midcaps in Europe's defence, ...Read more

Mutual funds
Fund managers brace for regulatory challenges as outsourcing and innovation take centre stage
As regulatory complexities continue to mount, fund managers are increasingly turning to outsourcing and prioritising innovation to navigate the challenging landscape, according to a new study by Carne ...Read more

Mutual funds
New report highlights rising anti-money laundering risks and need for three lines of defence
A new report published by Ocorian and Newgate Compliance has warned that rising anti-money laundering (AML) risks are increasing the pressure for alternative fund managers to have three lines of ...Read more

Mutual funds
Centuria capitalises on non-core diversities with a new $50 million fund
The Centuria Capital Group, an established Australasian real estate fund manager, has successfully raised $50 million in equity from its network of Australian wholesale investors. Read more

Mutual funds
New study shows fund managers are eyeing overseas markets for capital growth
A recent study conducted by Carne Group, a prominent figure in the fund regulation and governance solutions sector for the asset management industry, has highlighted a significant shift in the ...Read more

Mutual funds
Equity Trustees reports robust performance with significant revenue and profit growth
Equity Trustees has witnessed a noteworthy advancement in its financial standing, marked by substantial increases in revenue and funds under management, administration, and supervision (FUMAS), ...Read more

Mutual funds
Micro-investing: Is it worth it?
Investing can be complex. It involves making financial decisions on how your money is going to be invested and managed over time, as well as figuring out the right strategy for each investment. There ...Read more

Mutual funds
RAIZ v Spaceship: Which is better value?
Raiz and Spaceship have become the two biggest apps in the micro-investing space, but which offers a better deal for Aussie investors looking for a hands-off savings strategy? Read more