Posted: 2005-09-13 23:57 Smaller capital stocks  Presenter: Lindsay Williams Guest(s): Alistair Lea In 2004 small and medium capital stocks shoot out the lights - outperforming the JSE Alsi 40. Can it be expected that this performance will be repeated? With Alistair Lea, small capital fund manager at Coronation LINDSAY WILLIAMS: Last year was an exceptional performance for small and medium caps - outperforming the JSE Alsi 40. I don’t think anybody expects 50% to 60% - but do you expect them to perform in line with, or better than the major indices? ALISTAIR LEA: From here on out I wouldn’t expect them to outperform to such an extent - our assessment here at Coronation is that going forward the small and the mid cap sector is likely to perform probably somewhat in line with the larger companies - the one caveat being what the rand does. If the rand were to weaken significantly you can bet that the large companies would outperform significantly - whereas if the rand were to strengthen further I would say that mid and small caps would continue to outperform. LINDSAY WILLIAMS: So the small and mid cap market is very much not a rand hedge arena? ALISTAIR LEA: Absolutely. The large companies - being your big resource companies, a lot of your dual-listed companies - their earnings are to a much greater degree affected by rand dollar exchange rate movements. A lot of the smaller companies are largely unaffected by currency movements. LINDSAY WILLIAMS: I’ve been talking a lot about the last year, and the out-performance of the sector compared with the ALSE 40 - but in fact that doesn’t really do it justice because I think it’s been about three to four years that this market has been going. What’s been the driver? ALISTAIR LEA: I think there have been many drivers, but I think perhaps the biggest driver has probably been the rand - I think the rand probably started strengthening back in 2002, and if you track the rand’s strengthening relative to the out-performance they’ve tracked each other fairly consistently. I would say that’s been the major driver. The other big driver obviously has been the changed economic environment in our country - lower interest rates had a huge impact on the South African consumer, and the health of the consumer. A lot of those companies that benefit from the health of the consumer - being your retail stocks, your consumer stocks - fall outside the Alsi 40. LINDSAY WILLIAMS: Would it be fair to say that because of what happened in the late 1990s - with the small cap boom led by IT companies - that a lot of the big fund managers and institutions looked with a rather jaundiced eye at small caps therefore they were ignored? Maybe they’re playing catch-up now? ALISTAIR LEA: I do think that’s probably a fair assessment. The small cap fall that we had back in late 1998 was massive - we had a period of time when mid and small caps were over-valued relative to large companies. I think they traded on roughly a 20% or 30% premium to large companies - then came the crash of 1998, and that went to probably around a 50% discount to large companies which was a little bit overdone. Quite rightly I think fund managers did overlook a lot of these small companies. Yes, its probably playing catch-up in the last two or three years. LINDSAY WILLIAMS: In general you seem to be quite optimistic about the small and mid cap stocks. Any in particular - two or three stocks that really stand out for you for the rest of the year? ALISTAIR LEA: We still like Trencor and the Mobile Group - Mobile being the parent company of Trencor. We think it’s a fantastic company - probably one of the least understood companies on the JSE. We think that company will do well. Going forward we still like Mr Price - not such a small company any more, but we still think it has good prospects. Another small company that we think is a bit of a dark horse is called Gijima AST. It’s the old AST group that merged with a small black empowerment company called Gijima. We think that company - having been on the back foot for many years - is going to start producing some good results. LINDSAY WILLIAMS: We’ll keep an eye on that one - particularly as Gijima AST was born in that late 1990s period. We all know what happened to it after that! But as you say - one to watch. Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :