Chaco Resources CHP (Moderated thread)

The continuing underperformance of small caps and AIM stocks is causing some concern in some quarters. We believe that the AIM market has been saturated with low grade IPOs over the past two years, notably in the resources sectors. Hence fund managers are suffering a period of indigestion and will remain net sellers for some months. Moreover, any of those low grade IPOs seeking a secondary fund raising over the coming year will, having failed to deliver at an operational level since flotation, struggle to raise cash at anything other than a very steep discount.

Historically smaller company shares start to outperform when the base rate cycle turns – something we expect to happen during 2007. However we do not expect all smaller companies stocks to share in such a rally. Those with weak balance sheets and in need of cash are likely to underperform significantly.