There's more pain to come in small caps

Livewire Exclusive

Livewire Markets

The period of underperformance by small companies has widely been attributed to large funds rotating out of the sector. James Abela from Fidelity International has been doing some analysis that he believes offers an alternate explanation. His view is that there is more pain to come in small caps.

This is now becoming a shakeout year where those very young companies are actually showing themselves that they are riskier than you believe.

Key points 

  • The volume of new and young companies hitting the ASX has peaked in 2000, 2007 and again in 2016.
  • This means there is a peak in the number companies that have limited operating track records and are less resilient than investors believe.
  • This has resulted in a number of earnings downgrades, particularly in the small companies sector.
  • Abela says against this backdrop he has moved his portfolio more towards the midcaps part of the market.
  • He expects this cycle to continue over the next two years and that the shakeout for small companies could have longer to run. 

Click here to access more insights from Fidelity

2 contributors mentioned

Livewire Exclusive
Livewire Markets

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.


Sign In or Join Free to comment