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Santosh Joseph: So, before I answer, let me give you a very interesting perspective about small caps. Now let’s take a slightly larger timeframe like a 10-year period, when you take a standard 10-year period and when you take a small-cap performance, the best large-cap performance will be equal to the bottom small-cap performance.
I will repeat, the best of the best large-caps funds’ performance will more or less match the bottom rung small-cap performance, which means the top performer in the small-cap will be 2x, maybe even 3x of that performance.
So, let’s take the last week’s data, the best large-cap on a 10-year basis will give you between 15% to 16%. The worst small-caps in a 10-year business have given you the worst fund mind you, 15 to 16%. Now the best small-cap has gone on to make over 20% return on a 10-year period. Now that itself is true that small-caps are an integral part of the portfolio. Well, it comes with the sense of what we call lumpiness in returns or volatility.
Now once you understand the 10-year, story is clear, the short-term is where you are worried about what you start now, allocating the right process and the right percentage into the portfolio. But if you are someone who’s staggering or doing an SIP, as the small-cap equivalent to your portfolio, you have got nothing to buy, you should be happy.
On the other hand, if you are someone getting in at one time, be careful with the valuations. I think for a seasoned investor must have figured out that you buy small-caps when nobody’s looking at them and the one-year return is probably negative. Right now, when you look at one-year return and three-year return and five-year return, the story is slightly different. So, you know you are at the crux of another big turnaround in terms of small and mid-caps.
So, I don’t think we have to make it more complicated than it is, that its simple markups are an integral part of the portfolio based on an individual’s risk appetite. You decide whether 10% or 30% of the portfolio. Nobody goes to 30%, everyone knows the pros and the cons of it, and we usually go into multi-cap structure for your overall portfolio.
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