Small but mighty: why European equity investors should consider a meaningful small-cap allocation
Small caps have outperformed large caps in every region over the long term. Yet, investors continue to avoid them. Time to reconsider?
Smaller companies
Unlock the power of small
Risk warning
The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.
Smaller companies represent a big opportunity for investors. They're a vital part of the global investment landscape, offering agile and niche businesses that can significantly enhance investors’ portfolios.
We’ve been investing in smaller companies for over 25 years, with extensive experience in identifying quality companies with strong, sustainable business models that generate value for our clients.
We don’t chase trends or try to time market moves. Instead, we believe a long-term mindset, combined with environmental, social and governance (ESG) considerations are the best way to help our clients achieve their investment goals.
Return potential
Smaller companies have generally outperformed their larger peers across all regions over the long term1. While many investors think small caps are too risky, the trade-off for assuming more risk can be greater return potential. Many of these smaller companies grow into tomorrow’s leaders.
Expanded diversification
Smaller companies make up around 70% of the world’s businesses2. This gives investors access to dynamic firms across various sectors and fast-growing markets not found in the large-cap world. Smaller companies are also more exposed to domestic economies, which may provide a buffer against global market volatility, and offer unique growth opportunities.
Value opportunity
Despite their obvious potential, many of the asset classes within smaller companies are trading at a discount in absolute terms to their larger peers. This may offer an attractive entry point.
We also believe that investing in smaller companies can offer significant value for investors over the long term. Our deep, fundamental research has the potential to take advantage of lower sell-side coverage.
- 1 Source: Morningstar Direct, 1 October 2001 – 31 October 2024. Annualised relative outperformance of MSCI Small Cap index vs broader MSCI index
- 2 Source: MSCI, March 2025