Interest cascades into small, micro caps

11-Feb-2014

By Krystine Lumanta

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The small and micro-cap segments are expected to attract more interest and flows this year off the back of market predictions for good equity returns throughout 2014.

“We’ve definitely noticed that as the market has become more confident following some good numbers and returns, there’s more of a trickle down in interest in small caps and a little bit of micro-caps as well,” NovaPort Capital portfolio manager Sinclair Currie told financialobserver.

“We have started to see that trickle-down effect play out, but I wouldn’t say it’s a deluge.

“Typically, as people become more confident they look at what else is available outside of Australian equities. Especially if they’ve made the step to buy equities, it’s not a complete leap of faith to start thinking about small companies and similarly micro-caps as well.”

The two key factors driving investor interest came down to the potential of the small company and also the buying opportunity, Currie said.

“Typically, there’s a long track record of small companies that end up becoming very big companies, so they’ve been very good investments along the way,” he said.

“A lot of people are attracted to that idea – buying small companies that have a growth trajectory.

“Secondly, this is a segment of the market that’s not so obvious as Telstra, so there’s probably less attention on these stocks and therefore [they] represent good buying opportunities and are fundamentally cheap because they’re ignored or forgotten by the market.”

However, when it came to retail versus institutional investors, the driving factors were different, he said.

“Institutional investors are probably more driven by fund flow, whereas retail investors are driven by confidence,” he said.

“But what drives the institutional investors’ fund flow is probably the retail investor confidence, so I’d say they generally move lockstep.”

In addition, advisers were looking at small and micro-cap investing for their clients in different ways, he said.

In response to whether research coverage on the small and micro-cap markets was adequate, he said the sectors were reasonably well covered, but there was a long tail of small companies that was not covered at all.

“It’s really hit and miss,” he said.

“With the larger, more liquid names it’s ample and more than enough for investors to be able to find information.

“Typically the research is provided by brokers and brokers typically like to cover stocks where they can get remunerated by brokerage or corporate finance, so for those stocks which aren’t doing that many deals and not much turnover, there’s very little research.”

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