Record 40 year divergence between All Ordinaries and Smaller Companies

Romano Sala Tenna

Katana Asset Management

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.

Romano  Sala Tenna
Portfolio Manager
Katana Asset Management

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.

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