If You Want Big Gains in 2016, Check Out These Stocks

What a rubbish year for stocks.

The S&P/ASX 200 index fell 2.6% for the year.

It would have been worse if it weren’t for a mid-December rally.

Even if you include dividends, the result wasn’t much better. The S&P/ASX 200 Accumulation index gained just 2.1%. That’s only marginally better than you’ll get for a term deposit, but for much greater risk.

But it wasn’t all bad news for stocks. It turns out there were a group of stocks where you could have more than doubled your return compared to blue-chips.

Unfortunately, most investors don’t know about them. You may not know about them either. If so, let’s try to put that right…

Blue-chip stocks fell 2.6% last year.

Blue-chip dividend stocks rose just 2.1%.

In contrast, another group of stocks gained 5.3% last year. If you include dividends, these stocks gained a whopping 10.2%.

The stocks in question are small-cap stocks.

Small stocks beat big stocks

You can see the relative performance of the blue-chips and small-caps, both inclusive of dividends, in the chart below:


Source: Bloomberg

The yellow line is the blue-chip dividend stock index. The white line is the small-cap dividend stock index.

We like to think of this as the ‘revenge of the small-caps’.

The past four years haven’t been good for small-cap stocks. But that could be about to change.

When the Reserve Bank of Australia (RBA) began cutting interest rates in 2012, investors ran to big blue-chip dividend stocks. They rightly assumed that interest rates would fall further, which would lead to greater demand for dividend stocks.

Not surprisingly, the main victim of the shift to blue-chip dividend stocks were small-cap stocks. Few investors wanted anything to do with them. But that attitude is changing.

Even though interest rates could still go lower in Australia, investors aren’t convinced that Aussie companies can keep raising their dividends.

Because of that, growth is back in fashion. And when it comes to growth, few stocks offer better growth opportunities than small-cap stocks.

Big rally to continue in 2016

Our old buddy, Sam Volkering, knows all about that.

He spends pretty much every minute of every day searching for the best small-cap stocks on the Aussie market.

And with good reason.

When small-cap stocks move higher, history shows that they can move much faster and higher than lumbering blue-chip stocks.

And you don’t need to look that far back into history either. Just look at the chart above. Since August, after the stock crash, blue-chip dividend stocks are up 4.9%.

That’s not bad.

But small-cap stocks have done better than that. They’re up 13.5%.

And the good news is, according to Sam, this is just the beginning of a major small-cap stock surge. He’s identified a number of stocks which he says are set to take off in 2016, regardless of what happens to the broader market.

We agree with Sam’s enthusiasm for small-cap stocks. This part of the market has had a tough time of it going as far back as 2011.

But this rebound is a good sign. If it continues…if investors keep drifting back from blue-chip stocks towards small-caps, 2016 could reward risk-hungry investors well.

Check out what Sam has to say, including the small-cap stocks he’s backing for big gains. For details, go here.

Cheers,

Kris

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