Small Cap: Old Questions, New Answers

Small Cap: Old Questions, New Answers

Investors are demonstrating appetite for small cap equity strategies late in the market cycle. Yet the motivations for seeking small cap are evolving and the product universe has changed.

Small Cap: Old Questions, New Answers


From risk premium to risk diversification. For today’s investors, adding small cap is not necessarily about capturing the now highly disputed “size premium” but delivering robust, well-diversified portfolios.

Regional differences and active manager analysis. The characteristics of small cap investing versus mid/large cap vary significantly by region, and by whether one examines the passive index or the active manager exposures.

The rise of “global small cap.” An increasingly popular access point for small cap, there are now more strategies offering “global small cap” in one fund. The paper presents data on this subset of the universe encompassing sizes, investment process, styles and ESG integration.

Small Cap: Old Questions, New Answers


The past year has seen notably greater interest in small cap equity strategies – either regional or global – from investors that work with bfinance. Pension funds and other asset owners are structurally under-allocated to this space. The lack of exposure has been reinforced by two key trends of the past decade: the move from regional towards global equity strategies and the shift towards passive investment.

Investors should carefully consider whether the optimal approach for small cap in their portfolio is global or local. In seeking answers to this question, it is important to differentiate between indices and active managers, since we find that the latter deliver considerably more compelling performance in certain markets.

This article also reveals data from recent bfinance “global small cap” searches in order to shed light on this increasingly popular sub-sector. When selecting managers in this strategy, investors should be cautious of issues such as inter-product alignment and ESG.

Important Notices

This commentary is for institutional investors classified as Professional Clients as per FCA handbook rules COBS 3.5R. It does not constitute investment research, a financial promotion or a recommendation of any instrument, strategy or provider. The accuracy of information obtained from third parties has not been independently verified. Opinions not guarantees: the findings and opinions expressed herein are the intellectual property of bfinance and are subject to change; they are not intended to convey any guarantees as to the future performance of the investment products, asset classes, or capital markets discussed. The value of investments can go down as well as up.