Solid evidence on smaller cap’s superior performance. Quarterly Update.

PaulRen's picture
External Research

The presented evidence. The second quarterly update.  Smaller and mid sized capitalized SET shares remain the long term Thai performance stars.

Below is the link to the second quarterly update on the long & solid evidence how small and mid cap shares regularly outperform large cap SET index shares; and this over time by and by a very large percentage, here shown again since year 2000 and updated since our last publishing. 

While 2004 was a correction year for this smaller cap group, the overall long term trend is crystal clear. This is no accident and is likely to continue, as the traders and institutions alike for the most part, just ignore this group and so over-focus and overbid the large cap's, to their own peril. As despite the far superior performance over many years, as a group, the smaller cap stocks still remain undervalued with p/e's often at discounts of 20 to 50% as compared to large cap companies. And smaller cap companies overall grow faster and have less financial leverage as compared to their large alternatives.

Smaller cap stocks also historically have been less volatile then large cap stocks, which I show with this article:

Some observers in the past felt that this often expressed smaller cap out-performance at, was "just my own view". Yet here today we all can see the solid long term evidence and why its likely to continue so. 

To my knowledge no broker, Thai or Foreign, has ever published Stock exchange of Thailand (SET)performance, as classified by different market capitalization.  Here it is for all to see. The second quarterly update, again thanks go to Tonson Capital, Bangkok. Tel: +66 (0) 2 651 8777 for a solid industry contribution on this.

In part due to ever lower commissions, yet ease of trading, most brokers are interested in their clients day trading, not long term investing to achieve superior investment performance. Yet, trading is always at best a speculative endeavor, this is not understood by the masses. It too often results novice investors over time trading -out their winning positions- and holding on to the laggards.  In time only so to have a bunch of laggards at hand. The strategy is so flawed, not investment merrits of Thai stocks.

At this web site I since 1997 relentlessly and objectively seek and often deliver, "deep value ideas" in these historically outperfoming secondary Thai shares. Yet since 1997, these have overall been the true -and yet vastly under-reported- performance stars. Members are updated on my periodic ideas, I report on in person company visits, and currently running model portfolio. These regularly outperform the SET benchmark. They are regularly revisited, reviewed and updated and here stated and shared as viewpoints, that's all.

Of course, past performance can never guarantee nor promise future good results and that my model portfolios only represent my own views at the time, and that this may change. My views are never to be taken never an strict investment recommendations. Only you know your financial situation, risk tolerance and investment objective.  Yet over the years, Thai stock investors whom put their over cautious mind at rest -and instead focused on deep value shares with high dividends- have on average done very well indeed and I think this will continue.

Best Regards,

Paul Renaud

To see the Tonson quarterly updated graphs please click here:

Note that the graphs have just been re-stated on March 15 '06, for the following given reason:

"If you look carefully the CAGR numbers have increased for both Small and Mid Cap Indices but the 2005 performance is different as they both underperformed the SET and SET50. The reason for the difference in the numbers is due to the raw data, we found discrepancies in the data taken from Bloomberg, thus we have decided to use data solely from SETSMART".    SETSMART turned out to be more reliable then Bloombergs on this.

Either way the evidence is overwhelming:



Methodology for calculating the indices:
· Market Capitalisation Definition:
· Using the Morningstar Methodology, market cap ranges were calculated relatively
· Large Cap: 80% of total market capitalisation; Mid Cap: 80%-95%; Small Cap: 95%-100%
· Absolute Figures: Large Cap > 10 billion baht; Mid Cap 10 > 2.5 billion baht; Small Cap < 2.5 billion baht
· Index Calculation is done using the market capitalisation weighting methodology used by the SET to calculate the SET Index
· (Current Market Value / Base Market Value) x 100
· “SMC” = Small and Mid Cap