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Johannesburg - Small and medium capitalisation shares are often maligned for being volatile and underperforming on promises made, yet they should still be considered part of a balanced investment portfolio.
Plexus Asset Management investment manager Prieur du Plessis calculated that since June 2002, the JSE/FTSE small cap index delivered a 569% return. The figure reflects the index's total performance, including dividends and interest reinvested.
This was well in excess of the 216% return of the All-share (216%) and Top40 (189%) indices over the same period.
"Investors can benefit from the good performance of these two sectors (small and medium cap shares) by investing a portion of their long-term savings in a unit trust for smaller companies," said Du Plessis. The RMB small/mid cap fund has been the best-performing unit trust in this sector recently, returning 49% in the last 12 months.
However, those who want to invest in the small cap sector need to have the stomach for volatility. A year after winning a Raging Bull award in 2007, the Stanlib small cap fund, which was heavily exposed to illiquid construction stocks, slumped nearly 60% in a year as the financial crisis took its toll.
During the past year, the best performance from unit trusts over 12 months came from RMB, Sanlam Investment Management (35%), Old Mutual [JSE:OML] (34%), Nedgroup Investments Entrepreneur Fund (27%), Coronation Fund Managers [JSE:CMS} (27.35%), Investec [JSE:INL] (22%) and Stanlib (3%).
However, of three year RMB delivered 12%, Sanlam Investment Management -18.5%, Old Mutual -15%, Nedgroup Investments Entrepreneur Fund -12%, Coronation -14%, Investec -17% and Stanlib -63%.
This volatility has prompted market commentators to suggest South Africa could benefit from an index tracking product or exchange-traded fund (ETF) tracking a basket of small cap shares. To date, issuers have been wary of such a product.
However, Alphen Asset Management analyst Philipp Wörz cautioned that investors should do their homework when it comes to small cap shares. In a recent note to clients, he pointed out that investors needed to recognise that certain companies are "cheap" for a reason.
"The performance of smaller companies in recent years illustrates why proper homework needs to be done prior to committing capital to these businesses," Wörz said.
"As liquidity is often also an issue, understanding the business thoroughly and being comfortable with management's abilities to implement long-term strategies effectively cannot be overstated, as an investment into these companies will inevitably be a very long-term one."
- Fin24.com
Plexus Asset Management investment manager Prieur du Plessis calculated that since June 2002, the JSE/FTSE small cap index delivered a 569% return. The figure reflects the index's total performance, including dividends and interest reinvested.
This was well in excess of the 216% return of the All-share (216%) and Top40 (189%) indices over the same period.
"Investors can benefit from the good performance of these two sectors (small and medium cap shares) by investing a portion of their long-term savings in a unit trust for smaller companies," said Du Plessis. The RMB small/mid cap fund has been the best-performing unit trust in this sector recently, returning 49% in the last 12 months.
However, those who want to invest in the small cap sector need to have the stomach for volatility. A year after winning a Raging Bull award in 2007, the Stanlib small cap fund, which was heavily exposed to illiquid construction stocks, slumped nearly 60% in a year as the financial crisis took its toll.
During the past year, the best performance from unit trusts over 12 months came from RMB, Sanlam Investment Management (35%), Old Mutual [JSE:OML] (34%), Nedgroup Investments Entrepreneur Fund (27%), Coronation Fund Managers [JSE:CMS} (27.35%), Investec [JSE:INL] (22%) and Stanlib (3%).
However, of three year RMB delivered 12%, Sanlam Investment Management -18.5%, Old Mutual -15%, Nedgroup Investments Entrepreneur Fund -12%, Coronation -14%, Investec -17% and Stanlib -63%.
This volatility has prompted market commentators to suggest South Africa could benefit from an index tracking product or exchange-traded fund (ETF) tracking a basket of small cap shares. To date, issuers have been wary of such a product.
However, Alphen Asset Management analyst Philipp Wörz cautioned that investors should do their homework when it comes to small cap shares. In a recent note to clients, he pointed out that investors needed to recognise that certain companies are "cheap" for a reason.
"The performance of smaller companies in recent years illustrates why proper homework needs to be done prior to committing capital to these businesses," Wörz said.
"As liquidity is often also an issue, understanding the business thoroughly and being comfortable with management's abilities to implement long-term strategies effectively cannot be overstated, as an investment into these companies will inevitably be a very long-term one."
- Fin24.com
