The August reporting season proved to be a period of significant volatility for investors, with small cap stocks demonstrating notable outperformance, according to SGH Australian Small Companies fund co-portfolio managers Rory Hunter and Phillip Li. The reporting season saw considerable intraday volatility as investors reacted sharply to earnings results. Companies that slightly missed expectations faced immediate selling pressure, while those exceeding expectations, even marginally, were rewarded handsomely.
According to Hunter, larger, more liquid stocks typically considered safe havens were not immune to this volatility. Companies like Woolworths and CSL experienced double-digit percentage declines following results that disappointed the market. He also noted that some companies were rewarded for increased capital expenditure, with the market willing to overlook short-term expectation misses due to investments in future growth.
Hunter highlighted a broadening of interest in equities, with the ASX Small Ordinaries index significantly outperforming the ASX100 in August. This indicates a growing willingness among investors to explore opportunities further down the market capitalization spectrum in pursuit of better risk-return profiles. Li noted positive surprises from companies in the consumer and property sectors, areas the SGH Australian Small Companies fund has favored for months. He added that the market has responded positively to trading updates from these companies. SGH Australian Small Companies Fund invests in undervalued Australian small companies with significant growth potential.
