The stocks that make up the Australian share market fall into three main categories: large, mid, and small. Based on the size of each company or market capitalisation, investing in shares in each category is a great way to diversify your portfolio and ensure the maximum level of return over the long term. At SG Hiscock, we are often asked questions such as which is the best small companies fund? Which investment funds are low risk? And which Australian small companies fund is predicted to experience growth in the near future? As boutique fund managers specialising in high conviction actively managed investment strategies, we are here to help with the best advice and investment solutions. In this article we will break down each type of share making it easier to understand the three categories.
Large Cap Shares
The biggest companies on the ASX when it comes to market cap, they’re worth anywhere from $10 billion to $100 billion or even more.
Dominating the S&P/ASX 50 (the 50 largest companies in the country and representing half of the Australian share market) this category is made up of many familiar names such as Coles, CSL and the Commonwealth Bank. In the US market, the most famous large cap shares are Facebook, Apple, Amazon, Netflix and Alphabet (Google’s parent company).
Why Invest in Large Cap Shares?
- Stability and transparency – these shares have a proven track record of consistent revenue and earnings, so you can be confident that they will make you money over time and stand up against economic downturns.
- Regular dividends – as they are well-established, most commit to paying dividends to their shareholders. Large cap shares with a low share price are often worth considering for a steady income stream.
- Influence – as these companies create innovative products and services, news about them can sway the overall market.
Large cap shares have already gone through a massive growth phase, so you may not see the same huge returns that you might from small cap shares. However, their low volatility makes them one of the safest equity investments.
Mid Cap Shares
The bottom 50 companies in the ASX 100 in terms of market cap, mid cap stocks are medium-sized companies’ worth between $1 and $10 billion. While they are certainly established in their industries, they still have a lot of growing to do. Qantas, Harvey Norman and JB-Hi Fi are just some of the current mid cap stocks you will see listed.
Mid cap shares are more diverse than large cap, you’ll find a mix of tech, healthcare, and retail companies in this sector.
The Benefits of Mid Cap Shares
- Growth potential – mid cap shares tend to have higher revenue and net income growth than large cap shares.
- Agility – due to their size, mid cap companies can more easily respond to growth opportunities. Mergers and acquisitions, as well as companies that focus on a niche market, all feature in this space.
- Diversity – investing in a range of mid cap shares is an easy way to diversify your portfolio.
Generally riskier than large cap companies, but less risky than small cap companies, they provide a balance between growth and stability – perfect for any investor.
Small Cap Shares
Small cap shares are the companies that sit outside of the largest 100 on the ASX. Part of the S&P/ASX Small Ordinaries Index (XSO), they usually have a market cap of a few hundred million dollars to $1 billion. While these companies are usually younger, they generally have serious potential and it’s exciting to watch them grow.
Investing in Small Caps:
- High growth rates – these companies can grow overnight.
- Adaptability – the best low cap shares can change course to respond to shifts in the market quicker than a huge corporation.
- Often undervalued – as most analysts focus on large cap companies, small cap companies can fly under the radar.
While these stocks come with higher risk, they also have the potential for higher returns. With appropriate selection methods and risk management, small caps can add considerable benefits to your portfolio.
Balance Your Portfolio with Diverse Investment Funds
At SG Hiscock, we can help you select a mix of large, mid and small cap shares to diversify your portfolio, maximising your return potential. Get in touch with us today to find out more.