Advisers shifting focus to small-cap investments

Fidante’s latest Adviser Markets survey found that advisers were most confident in Australian small caps, with 51 per cent of respondents bullish on the asset class, and just 19 per cent feeling bearish on the asset class.

As a result, 35 per cent of advisers say they are likely to increase their clients’ allocations in Australian small caps over the next six months, and even more (41 per cent) are going to increase holdings in fixed income assets.

The report also found that, as advisers have begun to lean more heavily into small caps, their faith in Australian large caps has waned following years of driving market highs, led by the Magnificent Seven in the US.

To this point, the survey found that within equity markets, advisers were the least bullish on large caps (32 per cent) while nearly seven in 10 (68 per cent) said they were neutral or some degree of bearish on the asset class.

As such, 16 per cent of advisers were looking to decrease their clients’ holdings in large caps over the next six months and were least likely to increase holdings in this asset class.

Fidante Affiliates general manager Evan Reedman said: “We’re observing a clear shift in focus towards Australian small-cap equities, with advisers recognising untapped value in this space after lagged performance in recent years.”

While advisers are clearly holding faith for small caps, close to half (46 per cent) of advisers are also bullish on global equities and four in 10 (39 per cent) survey respondents predict it will be the best-performing asset class over the next six months.

Though, according to the findings, advisers are worried that global markets may become too expensive, with a quarter (26 per cent) of advisers concerned about high valuation, followed closely by economic slowdown (23 per cent) and geopolitical tension (22 per cent).

Unsurprisingly, diversification remained a key priority for advisers, with infrastructure (30 per cent), private credit (24 per cent), and private equity (18 per cent) also holding favour.

Cash held the least appeal by a considerable margin, with 43 per cent predicting it to be the worst performing in the near future among nine asset classes, and just 1 per cent expecting it to be the top performer.

Notably, inflation has finally been taken over as the most pressing concern for advisers. Economic slowdown (44 per cent), high valuations (27 per cent) and market volatility (11 per cent) are now the three primary concerns regarding investing in equities in the next six months.

However, inflation concerns have not been entirely quashed as six in 10 (59 per cent) advisers are still somewhat concerned about it potentially having a negative impact on equity returns, according to the survey findings.