"We will enter a period of lower inflation from FY24 and beyond"

As part of our Shocking Predictions session at Livewire Live 2023, Marcus Burns, Australian small cap specialist and portfolio manager at Spheria Asset Management, argues that what seems like "sticky inflation" needs to be understood in context: say the last 10 years of inflation in Australia. 

Viewed from that perspective, it is more like "the Nullabor Plain with a blip" according to Burns. Which means there will be a turning point at some stage from high inflation back to its historic levels. 

And that's the sweet spot for small caps. Why? As Burns sees it, in times of high inflation, investors retreat to defensive stocks, aka large caps. He concedes there is evidence to support  this behaviour: in times of higher inflation, large cap stocks outperform small caps. But at times of transition to a lower inflation environment, small caps outperform. And they also outperform large caps in a low inflationary environment. 

So, if his call on the timing is sound, that means it's coming to the time to look again at investing in small caps. You can watch his presentation below to learn more about his "shocking prediction" and what it means for your portfolio.

This article was originally published for Livewire Markets on Wednesday, 27 September 2023.

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