Small is good!
Chart of the Week 16 Jul, 2010
The following charts plot the performance of the resource sector – subdivided into large diversified companies (BHP, RIO et al), mid-tier producers and small cap resource companies (explorers and emerging producers).
The larger companies obviously provide lower risk for investors due to their diversified commodity and operational exposure, as well as balance sheet strength. However, in the first chart (which plots the performance during the ‘China boom’ to date) it is apparent that better average returns have been able to be achieved from the mid-tier and small resource companies (which provide greater leverage to commodity price movements and development projects).
Data sourced from Bloomberg, SR
Shifting to a shorter time horizon, it is somewhat surprising during the post-GFC period how quickly investor risk appetite has increased, despite obvious market concerns over the pace and sustainability of global economic growth.
Data sourced from Bloomberg, SR
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