‘The smaller you get, the worse the performance has been’: Should ASX small-cap shares be avoided right now?

On any given trading day, news of at least one ASX small-cap share soaring upwards by more than 20% is likely. In fact, it’s entirely possible to see a small-cap share soar more than 50% in a day.

But are ASX small-cap shares the way to go, or should they be avoided?

Let’s take a look at one expert’s view on the smaller end of the market.

‘You don’t get bargains’: expert

Australia and the wider international markets have been on edge in recent times amid fears of a recession and pending interest rate hikes.

However, in an interview with livewire today, Forager Funds chief investment officer Steve Johnson said, “You don’t get bargains without dysfunctional markets“.

Johnson expressed his view on the market, given US and Australian sentiment in recent times, and noted some concern about small-cap shares. He said:

The smaller you get, the worse the performance has been. On the Russell 2000, an American small companies index, more than 70% of companies have seen their share price go down more than 30% from their peak.

Of those companies with market caps of less than $500 million, that drawdown has been 55%.

These waves of momentum are being driven by a significant percentage of the market that doesn’t care how much profit the business is going to make or how much it’s worth.

Johnson also likened the market to a “casino”. He added:

The rise of retail gambling, the nature of the stock market being more like a casino; I don’t think it’s been more prominent than it has in the past few years.

In today’s news, ASX small-cap share Cardno Limited (ASX: CDD) has soared more than 110% in two days on the back of price-sensitive market news.

Analysts also believe these two small-cap ASX shares, Airtasker Ltd (ASX: ART) and Serko Ltd (ASX: SKO), could have potential.

The post ‘The smaller you get, the worse the performance has been’: Should ASX small-cap shares be avoided right now? appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#43B02A”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43B02A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• Guess which little-known ASX share has soared 110% in 2 days
• Experts name 2 exciting small cap ASX shares to buy with huge upside potential
• Why I think these ASX tech shares are buys in August
• Brokers name 3 ASX shares to buy today
• ‘We are benefiting from the inflationary environment’: Airtasker share price rockets 16%

Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Serko Ltd. The Motley Fool Australia has recommended Serko Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/Pxup8Qe