Small caps opportunities open up: Lonsec
More favourable conditions for small companies in 2013 should lead investors to revisit small caps allocations, according to Lonsec.
Small companies rebounded in 2012 to post modest gains of 6.6 per cent compared with the negative 21 per cent returns in 2011.
Although small caps recorded a reasonable return, they still underperformed large caps for the year, with the broader S&P/ASX200 returning 20.3 per cent in 2012.
Lonsec investment analyst Steven Sweeney said the result was not surprising given the volatility of small companies.
"Small caps will tend to outperform larger caps in periods of more buoyant market sentiment while experiencing more downside weakness when markets are troubled," Sweeney said.
"With risk appetite remaining relatively constrained, investors were more comfortable chasing high yield and defensive large caps during 2012 than venturing too heavily into small caps."
Lonsec said that if risk appetite continued to improve, it presented an opportunity for investors to revisit their small cap allocations.
Investment management teams had been uncharacteristically stable, while the prevalence of boutique investment platforms with high alignment of interest and investment team buy-in has also improved stability, according to Lonsec.
Small cap managers were impacted by declining market depth, it said.
"Weak capital market conditions prevailed in 2012 with a lack of IPOs [initial public offerings], capital raising and merger and acquisition activity limiting a traditional hunting ground for small cap managers.
"The IPO market remains in drought and at cyclical lows for industrials. Indeed, 2012 was Australia's weakest year on record for share market floats, which only totalled $876 million — down 32 per cent from 2011, which was also a weak year," Lonsec said.
"A dwindling of new opportunities suggests managers are increasingly hunting in a shrinking pool and looking for similar qualities in companies, resulting in a crowded trade scenario with the same companies being widely held," Sweeney said.
Recommended for you
Being able to provide certainty about redemptions is worth fund managers pursuing when targeting the retail market even if it means sacrificing returns, according to Federation Asset Management.
Regal chief investment officer Philip King will step down from listed investment company VGI Partners Global Investments after the LIC reported a loss of $17.6 million for FY25.
Real asset commentators have shared what advisers should be considering when conducting their due diligence on the assets and how they can mitigate illiquidity for retail clients.
GQG Partners has announced net flows were down 28 per cent in the first half of 2025, with redemption pressure particularly hitting Australia.
