Riding the small cap wave: Opportunities amid market volatility

As the 2024 financial year comes to a close, CIO Steve Johnson and I do a deep dive into the state of small-cap stocks and recent market movements in the latest episode of Stocks Neat.

We discuss recent market volatility, spotlight resilient companies with strong recurring revenue, and share our stock-picking strategies. We'll also cover risk management approaches and provide insights into future market trends.

Tune in to hear about current opportunities, from both the small-cap recovery and potentially high-performing sectors.

"The small-cap market has been a challenging space, but within it, there are high-quality businesses with strong recurring revenue and free cash flows, presenting significant opportunities for investors"

Finally, we taste a Dalwhinnie 15-year whiskey during the podcast.

Timestamps

• 2:19 - The podcast begins with an examination of the 2024 financial year-end, focusing on the case for a small-cap recovery. The discussion highlights the divergent performance in small-cap stocks, with some performing exceptionally well (e.g., Gentrack (ASX: GTK)) while others have struggled. We also touch on the impact of mining small-caps dragging down the overall small-cap index.
• 8:54 - An in-depth analysis of the Small Ordinaries Index performance since 2009, noting its relatively poor 4% per annum return. The conversation explores reasons for this underperformance, including the impact of speculative stocks and the nature of the index itself. We discuss the challenges of finding an appropriate benchmark for their investment approach.
• 12:08 - We explore recent dramatic moves in US markets, particularly the sudden outperformance of small-caps vs. large-caps. The discussion touches on the liquidity-driven nature of these moves, thematic investing, and the potential impact of political factors like Trump's election odds on certain sectors.
• 19:46 - Now for a detailed look at areas where good value can still be found in small-cap stocks. We discuss high-quality growing businesses with recurring revenue streams, as well as more economically exposed companies that have been "ravaged" by the current environment but show potential for recovery.
• 24:08 - Finally, an examination of specific stock examples and opportunities in the Forager Australian Share Fund portfolio, including ReadyTech (ASX: RDY) and Catapult (ASX: CAT). The conversation highlights the potential for significant returns in less liquid stocks and the importance of getting in early before positive news starts to emerge.

Explore previous episodes here. We’d love your feedback. If you like what you’re hearing (and what we’re drinking), be sure to follow and subscribe – we’re doing this every quarter. 

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