Picking when small caps or large caps are going to outperform is no easy task. It depends on far too many variables, most of which are not predictable. As a rule, large caps generally do better when banks do better. Small caps do better when the Australian domestic economy is performing relatively better than the global economy, due to their domestically based customers. It is for these reasons we ask our investors to invest for at least 5 years, so as the trends can be smoothed.
In terms of a stock that’s been recently harshly dealt with, I will single out Bapcor. The company trades on only 16 times 2018 earnings (the lowest its ever traded on), its earnings are economically resilient, exceptionally well managed, and still has a long runway for store rollout across its many banner brands.
The share price has also been buffeted by a perceived exposure to Amazon setting up large distribution centres in Australia. We think this has been well overplayed, particularly when you consider that only around 20% of Bapcor’s earnings come from the retail market.
Pengana Capital is a funds management group specialising in listed equities, managing five active strategies focused on the Asia Pacific region.