Global small, mid-caps calling

Besides earnings growth potential, smaller firms provide diversification.

- Liesl Peyper

At a time of considerable concentration in markets and where "big tech has been the place to be", several mid-size and smaller companies are being overlooked by the market, says Barry de Kock, portfolio manager at Denker Capital.

He co-manages the relatively new Denker Global Opportunities Portfolio along with veteran Kokkie Kooyman as well as Jacobus Oosthuizen. The portfolio was launched in August last year and focuses on global mid-size and smaller companies in developed markets.

De Kock told Moneyweb in an interview that over the past decade, market flows have predominantly favoured large-cap companies, particularly in the tech sector and the US market.

Earnings growth at attractive valuations

Smaller companies, which have been largely overlooked, still have substantial market share to gain from larger incumbents.

"In mature industries, larger companies struggle to exceed GDP growth, whereas smaller companies have the agility to grow their earnings at a faster pace."

Denker Capital has a track record of investing in smaller companies globally, De Kock said.

"Our rationale is that in the long run you'll probably get better earnings growth than the market – at a very attractive entry valuation."

Besides the earnings growth potential, smaller companies also provide diversification.

"The funds that South African investors buy into for offshore exposure are heavily concentrated in the Magnificent Seven – the average exposure across 100-odd funds was about 14%," De Kock said.

Essent Group and Atmus