Rising interest rates hit smaller companies harder than their larger peers. Now it looks like the rate rise cycle could be coming to an end and some investors are starting to consider smaller Australian company shares again. We explain what this means for your investment portfolio.
What are small cap shares?
When investors talk about Australian small cap shares, they’re referring to the 200 companies that are listed on the Australian Stock
Exchange (ASX) and tracked by the ASX Small Ordinaries index. These companies operate in diverse industries – health care, consumer
discretionary, energy, communication services, financials, materials and real estate.
They’re called small cap because their value, or market capitalisation, is smaller than many of the companies listed on the ASX. The average small cap company is valued at $1.5 billion. In contrast, the companies in the ASX 100 (the ASX’s largest 100 companies) are more than 13 times larger: with an average value of $20.2 billion each.
Yet there can be good investment opportunities among Australian small cap shares. This is because investors may be able to buy undervalued companies before their growth potential becomes known by the broader investment community. What’s more, smaller companies are often nimbler and more innovative than their larger peers, which can mean they grow faster. Most larger companies were small once, and as small companies grow, so does the equity invested in them.
Explore growth with Australian smaller companies in your investment portfolio. Let's discuss your options and align them with your financial goals.