Private clients have traditionally been more averse to investing in smaller companies, favouring blue-chip names that provide superior liquidity and lower risk. Validity for this preference may centre upon the typical attributes of such stocks.

The client has some degree of comfort in the knowledge that larger companies are normally characterised by a proven track record, strong management expertise and quite often dominance in their respective businesses.

This is usually reinforced by the ability to weather economic cycles and to take advantage of growth opportunities, be they organic or via acquisition. Investing in small cap stocks is not for the fainthearted. Indeed 27 of the 45 smaller Irish companies experienced share price declines over the course of 1998, despite the fact that the overall market increased by 23 per cent.

This trend has not been restricted to the Irish market as small caps in Britain, the US and Europe have been similarly friendless. For example, in the US the S&P 500 rose 27 per cent, in sharp contrast to the 3 per cent fall in the Russell 2000, its small cap counterpart. Yet, contrary to the perception that smaller companies are destined to underperform, history has shown that these stocks have actually provided superior returns. As the current year bears testimony to a broad recovery in small caps, this is equally reflected within the Sharetrack universe.

Indeed, Powerscreen (45 per cent), Waterford Wedgwood (29 per cent) and Tullow Oil (18 per cent) are currently positioned among the top five performers, while other second-tier stocks such as Barlo, Ryan Hotels and Abbey have also had significant movements.

Underlying this recovery is a recognition by the investment community of the inherent value of such companies. Using traditional valuation measures, Irish small caps in general look cheap, with approximately 50 per cent trading on prospective price/earnings ratios of less than 10, compared to a market multiple of 18. Consequently, although small caps are generally not as alluring as their large cap peers, it is inevitable that they will catch the eye of investors searching for undervalued opportunities.

At this juncture, for Sharetrack investors in need of a performance boost, is this the time to cash in your blue chips?

Laura DeVoy is a researcher in the private client department of Goodbody Stockbrokers. Goodbody acts as broker to Powerscreen and Ryan Hotels.