A number of stocks in the large cap sector are under pressure at the moment, according to fund manager Fidelity.
“There are a lot of our large caps that are under a bit of pressure, the banks have been a bit boring just because of this question of whether we’re in a housing bubble and fears of increasing regulation,” Fidelity portfolio manager Kate Howitt said.
“For example, Telstra has been under a lot of pressure, BHP put itself under pressure for not giving the buyback that the market was so keen on.
“So this has been another interesting dynamic in the market, it’s not only been mining stocks outdoing the other earners, but it’s also been the small cap stocks outdoing the large cap stocks.”
In contrast small caps are currently trading at parity to large cap stocks, Howitt said.
“Small is beautiful in the market right now. A lot of the large caps have been out of favour and the small caps are actually trading at parity with large caps which hardly ever happens,” she said.
“Usually there is a discount for small caps because they’re inherently more volatile and more risky and you’ll pay more to have a solid, stable earner.”
Howitt added there has also been a re-emergence of merger and acquisition activity in the market.
“There was that point in early 2009 where so many companies were dirt cheap and there were those few companies around that had strong balance sheets, BHP and QBE were desperate to buy.but there was no price discovery, no willing partners, no deals being done,” she said.
“Now things have recovered. there’s also a huge wall of private equity money sitting on the sidelines looking for targets.”
