Question of the Week

Time to look outside the big stocks

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Question: What are your first two choices of the smaller companies paying good dividends that were recommended on Monday?

Answer (By Peter Switzer): Thanks for your question. Of the companies in my article, my favourites would be Ruralco and Ardent Leisure.

Whether or not they are worth holding in your portfolio depends on many factors, including your personal risk appetite and financial goals.

Question: I’m trying to understand why the big cap stocks have increased significantly more in value over the past year, compared to mid and small cap stocks. I appreciate there are a lot of miners in the small cap stocks but am still surprised at the variance.

Answer (By Paul Rickard): You are absolutely right – this market has been driven by the large cap stocks. Year to date, the performance difference between the large caps and the small caps is marked:

The reason is fairly straightforward – the major yield stocks have powered the market higher, and these tend to be the larger cap stocks. The four major banks, Telstra, Woolworths, Wesfarmers etc. have all done well. At the other end, the high Australian dollar, together with a weak domestic economy, has meant that there hasn’t been a lot of support for the industrial stocks (which tend to be smaller cap), and even with the miners, the support has been for the major low cost producers, such as BHP or RIO, rather than with up-and-coming producers or explorers/developers.

My sense is that this will change over the next 12 months – though we will need a lower Australian dollar and improving local economy to reignite the interest in the smaller caps.

Important:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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