Australian small-cap funds, which led markets last year, saw a reversal of favour in the first quarter of 2021 by underperforming large-cap counterparts, contrary to other global markets.
In a quarterly market review from Dimensional, the firm said Australia was the only region where small-caps had underperformed rather than outperformed.
“The small-cap premium was positive globally over the quarter, although the Australian market- which led the small-cap revival in 2020- bucked the trend. Value, however, was very strong in Australia, particularly among large caps,” it said.
Globally, small caps were likely to be benefitting as they did well in rebounding economic environments and growing optimism. They had also been more likely to adapt their businesses to the COVID-19 restrictions. However, many of these factors had already come into play in Australia last year as it emerged from the pandemic earlier than other countries.
In the US, the Dow Jones Composite Average returned 0.35% in the first quarter compared to returns of 8.6% by the Dow Jones US Small Cap Total Stock Market index. While UK markets had incurred losses during the quarter, the FTSE 250 had only lost 10% compared to losses of 16.8% by the large-cap FTSE 100.
Performance of US and UK indices during first quarter of 2021
According to FE Analytics, Australian large caps had performed best over the first quarter of 2021 with the Australian equity sector, within the Australian Core Strategies universe, returning 4.4% and the ASX 200 returning 4.2%.
This compared to returns of 2.6% for the Australian small and mid-cap sector and 2% for the ASX Small Ordinaries index in the same period.
Performance of Australian sector and indices during first quarter of 2021
The pattern was a reversal of the trend seen in 2020 with the small-cap sector returning 16% over the year to 31 December, 2020 compared to returns of 3.9% by the Australian equity sector. For indices, the ASX Small Ordinaries index returned 9.2% while the ASX 200 returned 1.4%
Performance of Australian sector and indices over the year to 31 December 2020
