The case for small caps

December 7, 2018

Within Australian equities, investors may choose between large caps or small caps. In the long term, large caps grow at, or around, GDP and are generally heavily weighted with financial and material stocks (see the graphs below). This does not provide sufficient diversification for most investors.

 

 

Many investors may utilise ETFs to get the exposure to the ASX100, but they are not suitable for small caps as the lack of liquidity within the small companies universe causes difficulties in index tracking, especially when markets are volatile.

 

Small cap investments are key to a diversified portfolio and it takes dedicated stock pickers to achieve the sort of outcomes desired by investors.

 

The Glennon investment team have over 55 years’ experience in picking stock market darlings, such as Ramsay Health Care, TPG Telecom and The A2 Milk Company to name a few. Each of these were once small cap stocks and from 1 January 2000 to 31 October 2018, their returns were 5429%, 1914% and 1842% respectively.

 

The recent market correction has created more opportunities for us. The big end of the small cap market has seen valuations drop to prices that we believe are compelling entry points.

 

It is also important to keep a steady hand in these times. We constantly reassess our portfolio but have the courage of our convictions regarding our investment methodology and process. The relationships we have both inside and outside of our companies, in addition to our own proprietary research, allow us to be nimble when the need arises. This may be to sell a position in its entirety, take part profits or increase our investment

 

We are excited about the year ahead and look forward to seeing you at one of our events in 2019.

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Any information has been prepared for the purpose of providing general information only, without taking account of any particular investor's objectives., financial situation or needs, It is not an offer or invitation for subscription or purchase, or a recommendation of any financial product and it is not to be relied on by investors in making an investment decision. Past performance is not a reliable indicator of future performance. To the extent any general financial product advice is provided in this document, it is provided by Glennon Capital Pty Ltd ACN 137 219 866, AFSL No. 338 567. An investor, before acting on anything construed as advice, should consider the appropriateness of such construction and advice having regard to their objectives, financial situation or needs.

 

Phone: (02) 8027 1000

Email: info@glennon.com.au

PO Box R281,

Royal Exchange

NSW, 1225

 

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25 Bligh Street

Sydney NSW 2000

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