Chart of the week: Small caps lagging
This week's chart of the week comes from Morningstar's Market Strategist's take on small caps
A recent Chart of the Week outlined that blue chips look expensive and there are more opportunities in smaller caps.
Morningstar Australia's Market Strategist Lochlan Halloway has put together our outlook on small caps in the Australian market.
On the whole, it’s been a tough few years for Aussie small caps. Since the market selloff in 2022, the benchmark Small Ordinaries index has essentially tracked sideways, considerably underperforming the larger end of the market (Exhibit 1). But the large cap rally leaves few attractive options for investors, with the ASX 20 trading at a cap-weighted premium of almost 20% to fair value. As outlined in our previous chart of the week, this leaves more opportunities in the small cap space, comparative to large caps that have appreciated comparatively faster since 2021.
Almost 40% of small caps, defined as those outside of the ASX100 are four- or five-star rated, compared to 30% in the ASX 100.
Small caps aren't for all investors. We've done a deep dive on small caps, including the investors that they may suit, on Investing Compass. You can find the episode below, or the transcript for the episode here.
The rest of our take on small caps includes our top small cap opportunities and an analysis on the industry exposures and make ups of large caps vs. small caps in the Australian market.The full report can be found on Morningstar Investor by subscribers, or taking out a free, four week trial.^
Get more insights from Morningstar in your inbox
More Charts:
^This offer is limited to new clients and cannot be used in combination with any other promotional offers and cannot be used to extend an existing Investor Membership. One free trial per household. Morningstar is licensed to provide our subscription service to Australian residents only.
