STEPHEN CRANSTON: Caution still needed when investing in underperforming SA small caps
Long-term opportunities exist but smaller cap companies on the JSE are more exposed to the economy
They say a crisis, such as the underperformance of small caps, is a terrible thing to waste. Fund manager Ricco Friedrich has had a ringside seat in this sector for more than 20 years, at Franklin Templeton’s short-lived SA domestic business, Sanlam and then at Denker Capital, a breakaway business from the Bellville giant.
During the 1998 emerging market crisis small caps struggled as companies with weak business models failed; you may (or may not) recall Brainware, Global Village and Sweets from Heaven. Ten years later, during the global financial crisis, there was another significant sell-off in smaller cap shares as investors sought safety in the larger cap blue chip shares. And 10 years later small caps are under pressure again. Because March 2017 they have underperformed their large cap counterparts by more than 30%.