Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

It’s always darkest before dawn: Why the stage is set for small caps to shine

by Chris Robinson, CFA, Investment Specialist

The most common question we are receiving from investors in 2023 is “when is the time to allocate back to Aussie small caps”?

Small caps significantly underperformed their large cap peers in 2022 against a backdrop of rising interest rates and a bleak economic outlook. We’ve seen this movie before. Small caps are more exposed to the economy, have less diversified businesses, and are less liquid than large caps. When the outlook starts to deteriorate, investors rush out of small caps and into large, liquid defensive stocks.

However, this underperformance has historically created a highly attractive entry point for savvy investors. Small caps (particularly actively managed small caps) deliver their strongest absolute and relative performance over large caps when the economic outlook starts to improve.

Small caps are now trading on a material discount to their historical relative valuations versus large caps, despite a strong medium-term growth outlook. With other big tailwinds now emerging, we believe now is one of the best times in history to invest in Aussie small caps.

Download the full paper

 

  •   7 September 2023
  •      
  •   

 

Leave a Comment:

banner

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.