The Small Cap Shift

Is it time to top up your small cap exposure?

It's not news that over the past couple of years the small cap sector has struggled against it's much larger peers. Globally the magnificent seven need no introduction and whilst the Russell 2000 index has gone up approximately 25% (since 18th July 22) the Nasdaq 100 has risen close to 65%, a significant 40% difference, driven predominately by those seven stocks in the magnificent basket. The big question is, did this all change last week? Are we now seeing the beginning of the shift we have been talking about for the past 6 to 12 months. Is it now the small cap sectors time to take the performance baton? With data (USA) coming out last week confirming the inflation genie (ignoring Australia) is heading back into the bottle, USA markets had an interesting response. Looking at the charts below, the Russell 2000 took off whilst the Nasdaq 100 had a much needed breather. Overnight it happened again with the Russell 2000 heading up whilst the Nasdaq 100 remained stagnant.

Could we be entering a cyclical bull trend for the small cap sector? Obviously time will tell but for now the small cap sector is off to a good start and it might be wise to consider your exposure to our Australian Equities SMA. The past few years has seen us underperforming the larger market mainly due to our smaller cap allocation but if the cyclical shift to small caps materialises we stand to reap the rewards in the coming years. As you know investing is not about picking the past winners but looking to the future winners.

Disclaimer

The contents of this article have been prepared by Ethical Investment Funds Management Pty Ltd (ABN: 26 108 175 819) which is a Corporate Authorised Representative (001277050) of Ethical Investment Advisers Pty Ltd and is intended as general advice only. No specific person’s circumstances, financial situation or objectives have been taken into consideration. You should not act on the information provided without seeking personal advice from an appropriately qualified financial planner. Past performance is no indication of future performance.