Opportunities in the ASX 50-150
Low growth, policy impasse and significant disruption across many industries has been challenging for the Australian share market. Mid-caps stocks, which we define as the ASX 50-150, are an attractive hunting ground for stock pickers in this environment.
Why? It’s increasingly the strategy of management – and the speed a company can react to disruption – that can really turn the dial and drive above market returns. Mid-caps typically combine strong balance sheets and cash flow with smaller and simpler business models, giving them greater agility to respond to disruption and to changes in the economic environment.
Chart 1 – In 2016, mid-caps have significantly outperformed large caps
Source: Factset as at 20 June 2016
Outperformance of this segment is not just a short term trend. Over the past 15 years, mid cap stocks have delivered greater returns than their small and large cap counterparts. They tend to be less covered by brokers, implying greater market inefficiencies and therefore, a greater opportunity to generate returns.
Chart 2 – Growth of $10,000
Source: BTIM, Morningstar as at 30 April 2016
Given the agility of these companies, and a compelling sector track record, it’s a great time to invest in mid caps. When we invest, we focus on generating consistent, repeatable alpha by taking a “core” approach to the sector. We believe every stock has the ability to outperform under the right circumstances and therefore we assess every stock on the market to maximise our opportunity set. For more information you can watch this video for a break down on how we invest in mid caps.