Small caps set for slower period
July 12, 2005 - 4:09PM
The stellar run enjoyed by Australian small cap investors may be over, despite the sector outperforming the major indices during the last four years.
According to stockbroker Intersuisse concerns over rising Australian interest rates, declining housing and retail sectors and fears of slowing growth in China have caused investors to flock to larger stocks.
This trend has pushed the Intersuisse Small Cap 150 Index down by 11.8 per cent in the first six months of 2005, Intersuisse research manager Peter Russell said.
The all ordinaries gained 4.4 per cent during the same period.
"People have been looking for more security and I think that will continue. I don't see any real reason for outperformance for the rest of the year," he said.
The turnaround follows a period of four year outperformance, with the Intersuisse Small Cap 150 Index racking up an average annual compound rate of return of 15.8 per cent compared to a 5.8 per cent return for the all ordinaries index.
The inclusion of biotech stocks and the exclusion of resource stocks, which ran strongly during the year, also dampened the performance of the Intersuisse small cap index, Mr Russell said.
Five of the 10 worst performers in the index were life science companies and nine of the 30 that fell by 30 per cent or more over the year were also from the sector.
Resource project management firm, Coffey International, and engineering company, Monadelphous Group, both gained 138 per cent during the year to lead the list of best performers.
Biotech firm Chemeq, which lost 76 per cent, and senior's accommodation provider Village Life, which dropped 74 per cent, were among the worst.
The tech sector represented an area of opportunity with several companies increasing their spend in the area after their last round of major upgrades in response to the Y2K bug in 2000, Mr Russell said.
"We've seen that now because more and more companies realise there are better systems around and more opportunities," he said.
Russell Investment Group's Australian Investment Manager Outlook, which surveyed more than 40 Australian fund managers during the first half of 2005, found almost three quarters of investment managers bearish on the small cap sector for the next 12 months.
The majority of managers believed international equities would be the strongest performing asset class during the next year.
© 2005 AAP
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