From a historical perspective, second-line stocks offer better returns than blue chips. However, the strong price movements of recent months have resulted in a historically very rare constellation: The price/earnings ratios of second-line stocks are very close to those of blue chips - and in some cases even fell below them. "This signals a need to catch up," says Mathias Beil, Head of Private Banking at Hamburg-based Sutor Bank. "If this ratio is to normalize, second-line stocks must make good gains."
For decades, comparisons have shown that small and mid-caps outperform big caps. "Since February 1988, the MDax has managed a plus of 2,541 percent, while the Dax has risen by 1,697 percent in the same period," says Beil. However, the signs have been reversed over the past five years: Here, the Dax has gained 54.71 percent, while the MDax has only managed a gain of 6.96 percent. "And a look at the still young year 2024 shows a Dax up 7.13 percent compared to an MDax down 2.69 percent," says Beil.
In principle, small and mid-caps continue to be significantly more volatile and also have higher valuations. "This means that they offer a higher risk premium," says Beil. "Due to the current price movements, a special feature has now emerged and the average price/earnings ratio of MDax stocks is extremely close to that of DAX stocks," says Beil. "In the meantime, the average P/E ratio in the MDax has even fallen below that of the Dax - historically, this has only happened very rarely."
So is a renaissance of second-line stocks imminent? "When you see that second-line stocks have always performed best in the so-called rebound year, the question really arises as to when they will be picked up," says Beil. "Especially in light of the record highs in the DAX." In addition, many actively managed small cap funds currently have liquidity ratios of around 30 percent. "So everything is in the starting blocks to take part in the next small cap rally," says Beil. "But there is no trigger in sight as long as the appetite for risk can still be satisfied by DAX stocks and perhaps cryptos."
