Why there are more opportunities in small caps

Small caps are often thought of as the poor cousin to blue chips. Investors first flock to the well recognised top 20 index stocks. Then, when time and risk appetite allow, they may on occasion dabble in smaller stocks. Not surprisingly, investors who limit themselves largely to the top 20 ASX listed stocks will miss out on the myriad of opportunities found amongst smaller stocks. The top 20 make up over 60% of the market capitalisation of the ASX 300 index and capture a disproportionately high amount of media and analyst coverage. These companies have significant domestic market positions and long histories. But with that comes a limited ability to grow, the need to deal with sprawling operations and the potential for structural challenges. In the past year the top 20 index, inclusive of dividends, is down 4%. Meanwhile the small cap index represents less than one sixth of the market capitalisation of the top 20, has ten times the number of stocks and has delivered investors a 15% return inclusive of dividends in the past year. (VIEW LINK)