By - Kunal Sawhney
Summary
- Small cap stocks are shares of companies that are at the bottom end of a stock market and have a valuation, or market capitalisation, of less than $2 billion.
- Stocks can be further classified into micro- cap and nano cap. On the London Stock Exchange, small companies are listed between 359 and 619 positions.
- Small cap stocks are general young and fast-growing companies, which might or might not generate large returns over time as there is a greater level of risk linked to these businesses
- Over the past six months, FTSE Small cap index has performed better than FTSE 100 index and FTSE 250 index.
Small-cap stocks are usually the bottom-line stocks, which are considered to be more volatile and riskier than mid or large-cap stocks. As there is a greater level of uncertainty around these businesses as they might be profitable or suffer losses, the small-cap stock by their very nature represent high return opportunities. Most growth stocks on the exchange are usually placed in this category.
The FTSE Small cap index is the fourth largest index on the London Stock Exchange in terms of market capitalisation, after FTSE All Share Index, FTSE 100 Index, and FTSE 250 index. These companies have a market capitalization ranging between $300 million and $2 billion.
The Index has been one of the strongest performing indexes of the FTSE Russell stable over the past six months since the lockdown was relaxed in the country. Many of the companies have registered a stronger turnaround performance over the period.
Below we look at five of the top performing FTSE small-cap stocks over the past six months.
(Source- Thomson Reuters)
As on 26 October, the shares of Superdry plc have been trading at GBX 181.7 per share (3.19 PM GMT+1) gaining 3.95 per cent over the previous day’s close.
(Source- Thomson Reuters)
As on 26 October, the shares of Restaurant Group plc have been trading at GBX 46.14 per share (3.20 PM GMT+1) gaining 4.00 per cent over the previous day’s close.
(Source- Thomson Reuters)
As on 26 October, the shares of Ted Baker plc have been trading at GBX 114.6 per share (3.20 PM GMT+1) gaining 1.5 per cent over the previous day’s close.
(Source- Thomson Reuters)
As on 26 October, the shares of Capital & Regional plc have been trading at GBX 36.4 per share (3.30 PM GMT+1) gaining 5.114 per cent over the previous day’s close.
(Source- Thomson Reuters)
As on 26 October, the shares of GoCo Group plc have been trading at GBX 110.00 per share (3.33 PM GMT+1) gaining 3.5 per cent over the previous day’s close.
Since the lockdown was announced in the United Kingdom, the FTSE Small share index has performed relatively better than larger and mid-size companies. However, on its own, the index has been in a constant upward trend during the period.
(Source- Thomson Reuters)
As on 26 October, the FTSE Small cap index has been trading at GBX 5270.57 (2.45 PM GMT+1) losing 0.3 per cent over the previous day’s close.
(Source- Thomson Reuters)
Over the same period, FTSE 100 index has given a return of -0.31 per cent, FTSE 250 index has given a return of 12.65 per cent, however, beating them both the FTSE Small cap Index has given a return of 14.59 per cent (2.45 PM GMT+1).
The other most important segment of the London Stock Exchange is the Alternative Investment Market (AIM) segment. The most comprehensive coverage of this market is given by the FTSE AIM All Share Index. Like the FTSE Small Cap index, the constituent companies of the FTSE AIM All Share Index are also growth companies and exhibit high risk, high reward characteristics.
Someone who is interested to pick stocks in the FTSE Small Cap index should also take a look at the constituent companies of FTSE AIM All Share Index. That market also has some very good companies that have the potential to create value for the investor. In fact, this market is much wider than the FTSE Small Cap index, where investors have a much wider choice of companies to pick from.