Taking advantage of the small-cap sentiment shift.

For the last couple of years, no-one wanted to touch small-caps.

Liquidity had dried up, placements were struggling to be filled, and good news was often seen as a liquidity event rather than a reason to rerate or build a position. But something could be shifting.

ASX 200 stocks have lowered dividends, slowed down buy-backs, and the RBA has jumped in to start pulling the cash rate down. Could this be the move to risk-on? Is the market preparing for a rise of the ex-200?

A conversation I had this week with a small-cap investor, Joel Webb of Altura Lane, highlighted some unexpectedly bullish sentiment, the most he's had in two years.

Let's dive into the details,

Ben

Are small-caps on their way back?

In our conversation, Joel laid out a few key reasons that could signal a turnaround in sentiment.

1. Liquidity seems to be returning.
   It's not just one or two stocks but across multiple sectors.
2. Good news is following through.
   Price jumps are holding more momentum with less quick exits.
3. Placements are getting scaled back.
   It looks like excess demand is there, or companies are getting better at raise sizing.
4. New money is moving in.
   It's not just existing shareholders shifting capital around, there's new buyers.

There's been a lot of turmoil recently but Joel's been doing this for a long time. If his observations hold true, there's definitely an opportunity here for listed companies to position themselves well.

So I asked him exactly that.

What should small-caps be doing pre-emptively to take advantage of a possible market turnaround?

Here are his suggestions on what to think about as a small-cap.

1. Know your new shareholders.

Go through your registry and identify who has come in over the last two years (or even the last two months). These investors don't cary the same baggage or expectations like shareholders who've been here from the start, so it's worth figuring out their expectations and values.

Look at what percentage of stock they are, what percentage of trading they are, how they compare to your daily volume. Build a real picture.

 2. Stay on top of industry sentiment.

It looks like sector trends and 'nearology' is driving a lot of momentum. If your competitors or peers are rerating on external factors, don't just assume investors will connect the dots for you.

Make sure you're proactive about highlighting your positioning relative to any outside benefit. A mining company with a neighbour who has done well? Share it. A biotech company in a sector that's hard significant breakthroughs? Let them know. Capital raised or takeovers in private companies like yours? Shout it out.

3. Keep your communications fresh.

Rising sentiment naturally attracts new investors. 

When they start researching you, what will they find? An outdated FY22 annual report and a 2023 investor video? Or clear, recent updates, an active CEO, and a compelling narrative.

Make sure your website, announcements, and investor materials are updated and ready to convert (we obviously agree here). 

4. Turn it back on. Now.

The last 3 years have been brutal for most companies outside the ASX 200/300. During that long slog, it's been reasonable to turn down/off non-operating spend. I get it. But now things are shifting. The market is moving and it's not as crowded as it was 3 years ago.

It's time to turn on the IR spend, both in cash and time, and start that momentum back up. Bonus points if you've kept that going during the last 3 years.

5. Time changes everything.

Markets move. New investors, new analysts, and new narratives. Never assume that what works in the past will work now. So keep an ear to the ground and an eye on investors. 

Be prepared so that when an opportunity comes forward, you're ready to take advantage.

What do you think?

If the conversation was an expert in small-caps is anything to go by, things could be waking up. The companies that move now - engaging the right people, and telling their story well - will be the ones positioned for what comes next.

And in the pessimistic scenario where it takes a big longer, there's no such thing as being too prepared. So let's make sure you're ready for it.

Let me know if you agree, disagree - or want to talk with Joel. Happy to make the intro. 

Cheers,

Ben