Small caps: Upgrades are coming

When we last spoke to Andrew Smith from Perennial Value Management and David Allingham from Eley Griffiths Group, small caps were coming off the back of a period of underperformance. It’s a different story now, with the Small Ordinaries rallying hard in the back half of 2017. But are attractive opportunities still available?

“We’re more bullish than most on the domestic economy, and small caps are highly leveraged to that.”

In this week’s Thematic discussion, we hear how each of our panellists are approaching the tech sector, their expectations for the wider market, and their preferred exposure for the year ahead.

Key points:

• The Small Ordinaries Index has significant exposure to mining and mining services, which Allingham believes is “cum-earnings-upgrades”
• Earnings momentum should propel these stocks higher over the coming months
• Fundamentals in the mining sector are strong, with strong balance sheets and high free cashflow
• Despite recent outperformance, small caps have underperformed since the GFC, leaving plenty of room to ‘catch up’
• Smith believes the opportunities in mining are less broad-based than previously, however there’s still value to be found for those that look
• Investing in the tech sector requires “strong balance sheet, strong cashflow, and honest management,” says Smith
• Watch the full video to hear their preferred exposures for the year ahead.

More on small caps

In last week's Buy Hold Sell, our panellists shared their view on five small and micro cap stocks. 

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