Any adviser with a long term view would be foolish to ignore small cap opportunities, Resolution Asset Management warns.
Resolution Smaller Companies fund manager David Clark says while many investors are being “sucked into” large caps, smaller companies are still attractive.
“I can understand why investors are nervous, but any properly diversified portfolio should have some exposure to small caps,” he says.
Clark says the fund is struggling to take in money amid the current volatility.
“People are worried, and I can understand that, they don’t know when the right time to get back in is,” he says.
“It would not surprise me if money dries up in many funds on the retail side.”
Clark says the small cap fund is reacting to evidence consumer spending is slowing.
“We are avoiding anything exposed to the consumer, so we are we are underweight in retailers, anything related to food, as well as real estate and property for obvious reasons,” he says.
“But what we are overweight in is in areas like healthcare, and especially those in and around the oil services sector.
“We are also interested in construction; it’s definitely a sector to keep an eye on.”
Clark says while the small caps fund is fortunate not to be directly linked to financials, bank problems are certainly troubling.
“It’s a pretty serious situation at the moment,” he says. “We could find ourselves at Q2 next year before we know if the banks are out of the woods.”
“If banks decide to shut up shop, it is going to make it tough for the rest.
“Even class act companies, such as Paragon Mortgages are having trouble with debt.”
Despite all the concerns, Clark says ignoring smaller companies is not the answer.
“As long as you have a long term view you will find good growth,” he says. “If you have a short term view, all you will find is grey hairs.”
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