A shift to small cap companies might be underway yet these companies are still trading at a substantial discount to larger companies, suggesting potential upside for investors, according to Prime Value Asset Management.
Richard Ivers, Portfolio Manager for the Prime Value Emerging Opportunities Fund and Prime Value Microcap Fund, said there are multiple reasons why momentum toward small cap companies is justified. “A confluence of factors has spurred this long-awaited shift to small cap companies.
“Interest rate cuts are providing increased confidence in the economic cycle, and there is a strong historical correlation between rate cuts and performance in smaller companies.
“The momentum gathering in equities markets generally has also boosted confidence in the higher-risk segments of the market.
“And small cap companies are still trading at large discounts relative to large cap companies, and in many cases represent outstanding value.”
Ivers said the recent reporting season showed that, while there was some volatility in results, it was a strong season with good earnings growth for many smaller companies. “We’re finding a lot of smaller stocks that look mispriced to us. And we think small caps generally are due some outperformance as well.
“Companies broadly are seeing resilient spending, but they are optimistic about what is to come given interest rates and the positive impact on consumer sentiment.
“Cyclically, housing stocks are starting to benefit, along with consumer discretionary, and AREITs are also poised to do well.”
Ivers said that while the small cap indices had underperformed in recent years, there were always opportunities to add value through stock picking in any market. “There is such a wide diversification of opportunities in small cap companies that you can always find good opportunities.
“We know that over the longer term there are big advantages in staying invested in this sector, regardless of where the broader market is going. The key is being consistent with your process”, he said.
The small cap Prime Value Emerging Opportunities Fund has delivered 11.8% per annum net of fees to investors since inception in October 2015 to 31 August 2025.
It is rated Highly Recommended by Zenith, Recommended by Lonsec, and is available on Netwealth, uXchange, Mason Stevens, Hub24, BT Panorama, Praemium, and AMP North.
Source: [Advisor voice]