DIVERSIFICATION AND GROWTH POTENTIAL
Providing added diversification, small-cap stocks can temper the exposure most Australian indices and lage-cap managed funds have to banks and resource stocks. For example, the financials (ex property) sector alone, which include banks, makes up over a third of the S&P/ASX 100 index.
A challenging domestic economy has created a difficult operating environment for many of the larger companies listed on the ASX, including the major banks. The beauty of small-cap investing is that despite the structural and macro issues facing the broader economy, it is possible to find small-cap companies that are performing well and off much lower earnings bases than their larger peers.
“If you are looking for broad diversification across industries and companies, it is best to look outside the S&P/ASX 100 Index.”
Senior Investment Analyst