Small ordinaries (xso) performance

[steve fleming]

5134

Most commentators look at the XJO / All ords performance which has been pretty resilient on the back of the big 4 banks strength.

But the XSO is a totally different picture.

Today the XSO closed at 2102, now almost 10% off its last high of approximately 2300, and heading back down to levels last seen in July. A lot of quality small caps have been demonstrating very weak price action, and a real risk-off rotation seems to be happening. My portfolio of micro/small caps is well off its highs.

I've found the small caps to be a pretty good lead indicator to overall market performance (possibly becasue the investors in this space are more astute than the overall market) so this price action is not positive. The scary thing is the DOW has not even begun to have big down days when the XSO normally gets smashed.

While there is the odd interesting play around, there is still not a huge lot of value out there, which is a bit of a worry as well.

Anyone else concerned about the recent performance of small caps? and if so what strategies are you taking to minimise future downside?

[steve fleming]

5135

XEC (Emerging Companies) index has performed even worse recently

At approximately 1100, it is 12% off its recent (October) highs

[mark100]

I've noticed. I've only had one negative week so far for 2013, back in May, but this week is shaping up as my second (although the Veda and Nine IPOs on Thurs and Fri should fix that). I've started to lighten a few holdings the past few days as I think the Santa rally may have come early this year. That said I think the overall ASX is in a bull market that will see it make a new all time high in the next 3 years

[mark100]

Also I don't think all the stock issuance is helping at present. I thought the RXP raising was poor form. Typical bull market stuff, we want cash for a rainy day etc. I sold half at 80c today in disgust

[percy]

5134

Most commentators look at the XJO / All ords performance which has been pretty resilient on the back of the big 4 banks strength.

But the XSO is a totally different picture.

Today the XSO closed at 2102, now almost 10% off its last high of approximately 2300, and heading back down to levels last seen in July. A lot of quality small caps have been demonstrating very weak price action, and a real risk-off rotation seems to be happening. My portfolio of micro/small caps is well off its highs.

I've found the small caps to be a pretty good lead indicator to overall market performance (possibly becasue the investors in this space are more astute than the overall market) so this price action is not positive. The scary thing is the DOW has not even begun to have big down days when the XSO normally gets smashed.

While there is the odd interesting play around, there is still not a huge lot of value out there, which is a bit of a worry as well.

Anyone else concerned about the recent performance of small caps? and if so what strategies are you taking to minimise future downside?

I noted a couple of weeks ago you, KW,and Stranger Danger were issuing warnings on Aussie threads,while Lizard and others had concerns on NZ threads.
I sold 20% of my holdings.Mainly shares whose PE were a lot higher than their growth rate.Sold my total AZV and CAJ holdings as they were getting to be too big a part of my total portfolio. [Thank you Steve Fleming and Lizard]. Sold on Monday 18th Nov.CAJ @ 47cents and AZV @24.5cents.Also sold CLH @ $1.56 .Have added a few EBT @ $2.8925 as I thought agm presentation was positive.
Did think I may have done the wrong thing by selling my biggest winners,but gave me the amount of money out of the market I wanted.

[born2invest]

Anyone else concerned about the recent performance of small caps?

and if so what strategies are you taking to minimise future downside?

No because I buy companies not indexes.

DDM/Gordon Growth which ensures I buy at a big enough discount to minimise downside (i.e. nothing different).

[NZSilver]

Yeh seems there is a correction, my portfolio has dropped a 5-10%, shares like CAJ have run up hard and profit taking must be occurring. NZX also ie PEB , SUM. I was very surprised to see a low of 32 cents on CAJ today (but was please to top up at 35.5 this morning). I believe corrections are healthy and often provide good buying conditions if you have any cash. Seems Percy has moved some capital from shares towards cash with good timing - well done.

[DarkHorse]

Interesting, particularly for someone predominantly invested in Australian small caps (done pretty well even over past 12 months - but not so nearly pretty in $NZs). I'm not at all sure about the direction of the market overall, but I do recall Peter Lynch in Beating the Street suggesting small caps were a good place to invest when their PEs were under 1.2x the market average. Taking a long term view, could we conclude from Steve Fleming's graphs that small caps offer good value relative to larger companies at present?

[mark100]

The weakness in small caps is very noticeable at the moment. However I don't place much emphasis on the chart of the XSO. If you look at it over the past 3 years it is in a horrible downtrend. Yet over that time from investing and trading small/mid caps I have returned very high positive % pa.

The XSO contains a huge amount of poorly performing companies (that never get mentioned on sharetrader because they're not worth it) and because they are small often with poor pricing power, comp advantages etc their underlying financial performance gets disproportionally worse when the economy is below trend.

Just find the few that are growing EPS at a decent rate and forget the XSO!

[steve fleming]

XEC now in correction territory down over 10% from 1170 in early march to 1043 today

[ozzie]

In the meantime, I can stash my cash into the large number of cap raisings going on at present - GHC being the latest.
A good week for cap raisings - made $950 from the RFL one today and locked in a profit of about $2650 from the OSH one due tomorrow (went short
on OSH with CFD's - too bad I couldn't short RFL , even though I like the company long term.)