Many investors and advisers recognise that a diversified portfolio should include an allocation to equities across the market capitalisation spectrum. This allows investors to capture the “small-cap premium” which has shown persistence over medium and long-term investment horizons. In this CPD-accredited article, we explain why it’s the right time to include global small caps in a diversified portfolio.
In our last article on global small caps, we examined the case for investing in global small caps. To recap, small caps – both domestic and global – provide portfolio diversification, long-term growth opportunities and, as an under-researched sector, the opportunity to invest in the leaders of the future. Smaller companies (and investors) are often the beneficiary of merger and acquisition activity.
Given the impact of the COVID-19 pandemic on market volatility, it’s important to note that periods of underperformance for global small caps coincide with recessionary environments. However, small caps historically go on to experience meaningful outperformance in economic recoveries.