Small Caps Ready To Rebound?

(by Jason Cubitt, Managing Director Fund Services)

The sharp fall in global markets in summer 2011 resulted from general concerns: European debt, a US “double dip” recession and China’s ability to cool its burgeoning economy. This caused capital to flee to US dollars, bonds, precious metals and other “safe havens”.

Hardest hit were smaller companies with higher risk and less liquidity. Mining exploration and development companies dropped up to 90% as growth fears re-emerged. Our holdings in these naturally led to the fund’s 37% annual drop.

But fear-induced selling is not selective. All small resources companies are sold regardless of merit. Careful selection that drove the fund’s past performance is swept aside in a “dash for cash”.

Some companies are down to half their net asset value: prices unseen since 2008. The same fear means precious metals stay strong. We see this gap between metals and mining stocks closing and small caps being the strongest driver of the fund’s recovery. But when…?

We expect the first half of 2012 to see Euro tensions ease, some US growth, China to land softly and general fears reduce. Historically first and fourth quarters perform best and we expect to significant gains for our smaller companies in Q1.

Our commitment to the sector is unflinching. The decade-long uptrend in metals prices remains unbroken and we see Asia, Latin America and soon Africa driving a commodities super-cycle for decades – albeit with volatility.

Download December 2011 Factsheet