Relative and absolute value still on offer in small caps
The chase for yield has lifted valuations in some sectors such as property and healthcare to multiples of earnings as high as they’ve ever been. Relative to interest rates, however, these valuations don’t look as extreme. Over the short term the drivers of this behaviour, lower interest rates, are likely to continue to support valuations. In the medium to long term these high valuations will cause the returns on these sectors to be lower than they might have been. One of the benefits of playing at the smaller end of the market is that there is rarely a shortage of new ideas in a relative and absolute sense. To this end, we are focusing the portfolio on a number of undervalued growth companies that are likely to experience earnings upgrades.