Australians are overweight a number of over-hyped names in the domestic small cap space and may want to consider switching some of their allocation to global small and mid cap equities, which offer a wider opportunity set and better value, according to a leading global equity manager.
Bell Asset Management Chief Investment Officer Ned Bell told Investor Daily while investors may be more comfortable in domestic small cap stocks, it was worth considering other opportunities further afield in North America and Europe.
“Aussie small cap stocks has been a great place for investing in the last couple of years, but in terms of where we sit today they are now more expensive than global stocks which to me makes no sense at all, because as much as there are some very high quality Aussie small caps there is very few of them, so they trade on these huge multiples,” Mr Bell said.
“But when you switch gears to global small and mid caps, most people have almost no exposure there. They might invest with some managers that can invest there but the reality is global small-mid caps makes up a tiny minority of the portfolio. There’s a logical case to be switching because A) they’re cheaper and B) the opportunity set is so much bigger, so that’s where you should be making a logical switch.”
Mr Bell said global small and mid caps could provide investors with good diversification, particularly in terms of the low correlation to the global large cap sector which was dominated by technology stocks.
“From a sector exposure perspective it’s quite diverse, I think this is why it fits in so well with large cap, because it’s not all about tech, it’s not a one trick pony,” he said.
“You see great companies in the global healthcare space and industrial space and that’s what it comes back to, thinking about growth, so we look at companies in that space.”
Mr Bell said some of the manager’s current holdings in the global small and mid cap space included property group CBRE Richard Ellis, alternative asset manager Partners Group and outdoor lifestyle product group Yeti.
“The way I’d summarise it is the companies tend to be small, unique franchises that are generating capital and have a big runway of growth ahead of them,” he said.