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.