Invest
Small investments offering big gains
Investors looking beyond the ASX 200 are able to significantly grow their portfolio with marginal additional risk, an asset management firm has identified.

Small investments offering big gains
Investors looking beyond the ASX 200 are able to significantly grow their portfolio with marginal additional risk, an asset management firm has identified.

In Clime’s media briefing, the industry experts compare large and small caps and the benefits investors can gain by allocating part of their portfolio to small caps.
Why you shouldn’t rely on large caps
For many passive investors, buying the ASX 200 allows for theoretical strong returns.
However, Clime has argued that the ASX 200 is too dominated by banks and miners, providing little diversity for clients invested in the assets.
According to Adrian Ezquerro, Clime’s head of investment, a lack of diversity will hurt investors with forecasts for large caps continuing to fall.
“At the start of the financial year the ASX 100 were forecasted to grow by 8.8 per cent, which has been dialled back to about 6.5 per cent within two months. Today, it is looking at five per cent growth, which is still a little optimistic,” Mr Ezquerro said.
The fund manager also highlight the overweighting that’s occurred in ASX 20 stocks through passively buying the market.
“If you look at the composition of the market (of the ASX 20), you circuit 55 per cent of the market. If you are buying an index fund or taking a passive approach, 55 cent of every dollar is going into the ASX 20 and you’re getting banks, miners and a few large retailers,” he explained.
According to Mr Ezquerro this is a concern at present, with banks suffering large remediation costs while the miners are coming back from a “rocketing iron ore price”.
Benefits of small caps
While ASX 200 companies are displaying downgraded forecasts, Mr Ezquerro said small caps are predicted to grow by 20 per cent for the year ahead and 8.7 per cent for FY21.
“If you were to look at that in insolation you would say that stands out because there is a significant difference in the growth profile you’re seeing when comparing large and small caps,” he said.
Despite having significantly larger growth, potential investors are only paying marginally more to invest in small and mid caps.
“Interestingly, the forward P/E (price to earnings) for the ASX 100 is about 17 and [for] small caps outside the 100, it’s 17.4.”
“You’re paying a very small premium, for a far superior growth profile for mid and small caps,” Mr Ezquerro stated.
The fund manager credits a lack of coverage on small cap success, as well as the lack of the managers looking into the stocks as giving investors an opportunity to gain larger returns for less.
About the author

About the author


Stock market
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more

Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more

Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more

Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more

Stock market
Facebook debuts new name
Zuck gets meta. ...Read more

Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more

Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more

Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more

Wrapping up an eventful 2021
Listen now

What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now

Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now

Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now

Stock market
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more

Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more

Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more

Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more

Stock market
Facebook debuts new name
Zuck gets meta. ...Read more

Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more

Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more

Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more