Small caps poised for strong returns

Rachael Micallef | 27 Mar 2013

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Rachael Micallef is a journalist with InvestorDaily, a Sterling publication.

 

More than one third of small-cap equities are projected to produce strong returns in the next three years, research from NovaPort Capital has revealed.

Data from the boutique small-cap manager found that 35 per cent of Australian small caps will grow more than 10 per cent per annum to 2015, as a result of increasing investor sentiment.

"In an environment where growth in general is relatively low ... small caps looks to us like an attractive space for investors who are looking for something more than just yield, so yield plus a bit of growth going forward," NovaPort Capital profile manager Sinclair Currie told InvestorDaily.

"You tend to find that investors need to overcome the initial decision of whether or not they want to be in other more conservative asset classes or equities first, and then after they've made that decision typically they start to think about whether they want some small caps as well."

NovaPort's research found the resources sector represented just under half of the total small companies in the projected high-growth category.

However, mining and energy small caps were equally spread across the different categories of growth and were differently affected by economic conditions.

Currie said despite commodity prices impacting some mining service businesses, it is NovaPort's strategic policy to cherry pick individual stocks rather than making whole sector assessments.

"As much as anything, the interesting resource companies to us are those well-managed companies with production growth which is tangible," Currie said.

"What we see in some of the small caps in the high-growth space is that the actual upside is as much driven by the delivery of projects within forecast parameters as opposed to the current commodity prices itself.

"Our view at NovaPort is that it's crucial to actually pick the individual stocks to build up a portfolio - casting broad nets and pulling in whole sectors isn't the way we choose to do it."

This report appeared on www.morningstar.com.au 2020 Morningstar Australasia Pty Limited

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