The outlook for small-cap companies remains positive, according to investment experts.
The positive outlook for small-cap companies is set to continue, with investment experts expecting these stocks to remain a compelling investment.
Small-cap companies are expected to perform well during the upcoming interim reporting season, according to Australian small caps manager Fairview Equity Partners.
"Key factors such as the strong Australian dollar, the rebound in commodity prices and continued consumer spending will be helping small caps such as McPherson's, Whitehaven Coal and Webjet," Fairview executive director Chris Adams said.
Irrespective of their recent gains, small caps continue to trade at a 20 per cent discount to large stocks, Adams said.
"We see plenty of upside over the coming two years. We believe that despite the strong performance of the small-caps market in recent months, small caps will continue to perform well and remain a compelling investment," he said.
Zenith Investment Partners director David Wright shared this sentiment.
"Small caps certainly reflect the domestic economy and the activity of the domestic economy probably quicker than some of the large caps," he said.
"Some of the large caps have fairly extensive operations overseas, whereas with small caps it tends to be more of a barometer for the local economy given that there's a lesser exposure to export and international markets with small caps.
"With a lot of the large caps, as we saw through the global financial crisis, they repaired balance sheets or attempted to by the issue of new capital through capital raisings, and from an earnings per share perspective that's quite dilutionary."
On the other hand, the majority of small caps weren't as highly as exposed to international markets, weren't as highly geared and weren't able to raise new equity, meaning their earnings per share were not diluted to the same extent as a lot of the large-cap companies, Wright said.
The institutions that collectively control more than $40 billion of Australian investment dollars are viewing 2010 as a year to tread carefully.... Watch»
