Small Cap underperformance presents fertile ground

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Livewire Markets

Small Cap underperformance presents fertile ground. The outperformance of small caps globally over the past 6-12 months is reflective of increased enthusiasm and optimism towards the outlook for economic growth. Australian small caps, on the other hand, have massively underperformed due to the large component of small resources companies in the index. According to Jeremy Bendiech of Avoca Investment Management this could present fertile ground to consider investing in Aussie small caps once the dust settled around resources. Avoca is looking at companies that even during a down turn in commodity prices are able to scrape through and keep producing. Western Areas (WSA) is an example of a company that has managed to survive despite poor Nickel prices. Should the Nickel price improve as global growth improves companies such Western Areas should be well leveraged to the recovery.

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