Spheria: Small financials looking frothy

Livewire Exclusive

Livewire Markets

Marcus Burns, Portfolio Manager at Spheria Asset Management, says there's been two reasons for the recent small-cap outperformance. Firstly, the quality of the companies has improved, while secondly, large companies have been performing poorly. While the outperformance has been welcome, he's beginning to see signs of overvaluation. One area he identifies as looking vulnerable is small financials. "It's quite easy to grow as a financier if you promise attractive interest rates. The problem is, you're relying on other parties to finance your business, typically, it's not just internally generated cashflows. You're relying on banks or high-yield bond markets to raise capital." In recent years we've had very easy credit terms. If credit tightens up, he expects to see a massive contraction of earnings and a crisis of cash flows. In the video below, he discusses whether small cap outperformance will continue and identifies three small financials showing signs of froth.


MORE ON



Livewire Exclusive brings you exclusive content from a wide range of leading fund managers and investment professionals.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.