Large caps better value in 2007

The head of investments of a leading fund manager believes large cap companies will offer better investment value than small cap companies across the globe in the coming year.

Perpetual Investments chief investment officer Emilio Gonzalez said the driving force behind lower price earnings (PE) ratios is the evidence that this will most likely be the case.

“Globally headline valuations at PE level remain attractive at 14 to 15 times… However, looking behind the numbers the median figures, not the average, are more like 18 or 19 times, which tells a different story,” he said.

“That is, that it’s the large cap companies that are keeping PE ratios at 14 to 15 times with the majority of companies valued at higher levels,” Gonzales explained.

The chief investment officer feels the situation has been brought about by the strong performance of small cap companies in recent years.

“Globally small caps have outperformed large caps in the past seven years since 2000… That has resulted in the divergence of valuation multiples between the large and small caps,” Gonzales said.

As such he has surmised that on a global scale he didn’t see any benefit in favouring one geographical region over another because the prognosis from a macro monetary perspective was similar across nations.

“I think the bigger story in the valuations, and an area where it does appear to offer the most attractive story is in the global large cap stocks having largely been ignored over the last few years,” Gonzales concluded.