article

Small caps worth another look: Activus

Originally published on Investor Daily on 31 May 2017

Investors have shunned underperforming small cap Australian equities in recent years, but there is reason to believe the sector is about to turn the corner, says Activus Investment Advisors.

The largest 100 Australian listed companies have returned investors 11.74 per cent in the five years since 2012, leaving the S&P/ASC Small Ordinaries index in the shade (returning 4.17 per cent).

Activus Investment Advisors co-founder Robert Talevski said the "outperformance gap" of 7.57 per cent has been created by investors' appetite for higher yielding large cap stocks.

As a result of investors "piling into" large caps, small caps are now cheaper than large caps on a price-to-earnings basis, Mr Talevski said.

"Large caps with a price to earnings ratio 18.3 times are considered expensive relative to its long-term average and in comparison to small caps with a price to earning ratio of 16.1," he said.

"The estimated three-five year earnings per share growth rate of small caps (15.4 per cent) is well ahead of the large cap growth rate of 10.8 per cent," Mr Talevski said.

The strong earnings growth expectation for small caps along with their attractive price earnings measures are "supportive of performance for small caps going forward", he said.

More generally, it makes sense to increase exposure to small caps on an asset allocation basis, he said.

Small caps tend to offer considerable returns potential, diversification benefits, a stronger alignment between management and investors, and the ability to access new companies, Mr Talevski said.

"Being a long-term investor also helps allowing smaller companies to achieve their growth expectations over the long-term without being affected by short-term fluctuations," he said.

  • YouTube

Activus Investment Advisors © 2020 

contact us

LEVEL 8,

100 COLLINS STREET,

MELBOURNE,

VIC 3000,

AUSTRALIA.

 

Mail: activus@activusia.com.au

Hours of operation 

Mon-Fri: 8AM to 5.30PM

Sat-Sun: Closed

DISCLAIMER: Activus Investment Advisors PTY Limited ABN 70 612 295 280 AFS rep no. 001242380 has prepared the information in this note. This note has been prepared for the purposes of providing general information only and does not constitute an offer, solicitation or recommendation for investment in Activus does it constitute financial product or investment advice nor take into account your investment objectives, taxation situation, financial situation or needs. An investor must not act on the basis of any matter contained in this announcement in making an investment decision but must make its own assessment of Activus and conduct its own investigations and analysis. While we believe that this material is correct, no warranty of accuracy, reliability or completeness is given and, except for liability under statute which cannot be excluded, no liability for errors or omissions is accepted. This note may not be reproduced or used for any other purpose unless permission is granted by Activus.