Record 40 year divergence between All Ordinaries and Smaller Companies
The old adage 'small fish are sweet' has certainly not applied to the ASX over the past 4 years. In fact a better analogy may be 'small fish have lots of bones'! As we can see from the clear analysis by Acorn Capital (below), small and mid caps have under-performed the All Ordinaries index by a record 60% over the past 4 years. Clearly this has largely been driven by the SMSF army's relentless search for dividends. However a secondary factor - and one which is consistent throughout cycles - is that in the earlier stages of a bull market, larger capitalisation companies are the first to move. As the cycle matures, investor confidence improves and risk appetite increases. When this is combined with a scarcity of larger cap opportunities and better smaller company valuations, it is usually time for the latter to play catch-up. Whilst history doesn't repeat, it does rhyme. And the time to rhyme with smaller companies is fast approaching.
Katana Asset Management was founded in September 2003 as a boutique investment management firm. Katana employs an all opportunity investment mandate being style, sector and market cap agnostic.