Investors frustrated by their returns from Blue Chips shares on the ASX could do worse than check out the smaller companies listed on the exchange.
Small caps, as they called, are suddenly in vogue and its not hard to understand why.
The main benchmark for measuring their performance is the Small Ords, which includes smaller companies in the ASX300 while excluding the Top 100.
This index trod water for four years until this year, and has gained more than 11 percent, much better than the market average.
A Dow Jones survey of fund managers also found that among active managers investing in larger cap shares, 60 percent had underperformed the market, while among those investing in small caps, 60 percent had outperformed.
Self managed super funds have also discovered small caps. Research by SelfWealth among 3000 SMSF’s recently found that the allocation to small caps had doubled in the last year to 19 percent of their equities portfolios. These are not shares in the Small Ords, they are shares outside the ASX300.
The returns from small caps has been even greater when added to another major market movement, such as the price of gold. The story of major miner Newcrest is well known in the market, but if you had bought into single mine operators in the last year you could have tripled your money if you’d time your entry and exits right.
You may never have heard of Northern Star Resources, Doray Minerals or Evolution Mining, but they have all been among the best performed stocks on the ASX.
Who says you have to go big to make the big returns? The recent experience of the ASX is there’s not only gold in gold stocks, but there’s also gold in small caps.