stocks asx chart

Yes, Smaller Can Be Better

If you have a managed super fund, odds are you’re heavily invested in Australian blue chip companies. That is, the companies making up the ASX 200.

The below graph shows the performance of the ASX 200 since 3 July:

Source: Google Finance

As you can see, the index has only returned 0.47% over the past three months.

Still, investors keep pouring money into the 200 largest companies.

Part of that is because these are familiar names. And we tend to be more comfortable investing in companies we’ve heard of. These larger stocks are also perceived to be less risky than smaller companies. And that’s true…to an extent.

Yet regardless of risk or returns, larger fund managers have little choice but to invest in these big stocks. When you’re dealing with millions of dollars aimed at a particular stock, you can’t really target a smaller company. Not without distorting its valuation, anyway.

This is where you, the little player, have a great advantage. You’re free to invest in blue chips as you wish. But you can also target the smaller end of the market. One the fund managers generally are unable to access.

And the smaller end of the Aussie market has done quite well of late.

Have a look at the below chart. It shows the ASX Small Ordinaries over the past three months.

Source: Google Finance

The ASX Small Ordinaries contains companies included in the S&P/ASX 300 index, but excludes the top 100 stocks. It’s a useful benchmark for small-cap investments. And it’s up 4.18% since 4 July.

That’s almost nine times the return of the ASX 200.

Tiny stocks — some too small to even make the Small Ordinaries index — can see explosive gains, regardless of wider market conditions.

That’s one of the things that makes small-caps so exciting.

Yes, they can be risky. But the right small-cap companies also have the potential to return hefty gains even when most big stocks are floundering.

Bernd Struben

Bernd Struben

Bernd Struben is the lead editor at The Australian Tribune. Bernd makes use of his extensive network to bring you the top stories you need to know about each day. Stories the mainstream may miss. Or bury somewhere you’re unlikely to ever read them. Bernd studied aerospace engineering and journalism at the University of Michigan, before graduating with a degree in economics. Over the past two decades he’s worked in media, management, and finance in the US, the Caribbean, Europe, and Australia. His other role, as the editor of the Port Phillip Insider, puts him in a unique position to read Australia’s most exclusive financial advice. Some of which he shares with readers of The Australian Tribune for free.
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  1. I have smsf and I have no blue chips I learnt if you pay attention and have stop losses small caps are better for everything you wrote above love the fact your stories are short and to the point