Prime Value Asset Management has said while there is a continuing demand for income stocks, investors who take a diversified view of small caps could see a better return.
"The demand for income stocks has continued from last year, obviously driven low interest rates, low growth, a low growth domestic product (GDP) growth environment and therefore this thematic has continued to run quite hard into this new calendar year," Prime Value senior portfolio manager ST Wong told InvestorDaily.
"What we are seeing in the small cap space is that if you have a product that is obviously in high demand, that's definitely filtering through to positive share price performance."
Mr Wong said with investors flocking towards yield, many larger companies have seen share prices increase and become expensive.
He said that this trend hasn't become apparent in Australian small cap equities.
"There are elements where small cap prices are cheaper compared to large cap companies because of the chase for yield," Mr Wong said.
"A number of the larger companies have seen price performance do very well, but with a lot of smaller companies that is probably less evident and it will probably throw some opportunity up in the small cap space."
Mr Wong said that 2013 still looks to be a transitional year with the Australian market moving away from a dependency on resources.
"One key question I think investors have been asking is obviously, with the collapse of commodity prices and share prices of small mining companies, whether there are opportunities," Mr Wong said.
"In my view, it is probably a little bit too early to look for value in the smaller resources companies, but I probably would say there is better value and less risk with the larger, diversified resources companies."
