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
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
