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By Don Steinbrugge, founder and CEO at Agecroft Partners, a global hedge fund consulting and marketing firm.
Global small-cap equities represent one of the most persistently overlooked corners of the public markets, and the current environment presents an unusually compelling entry point for allocators willing to look past the mega-cap names that dominate most portfolios.
The case rests on three distinct but reinforcing arguments: small caps are trading at one of the widest valuation gaps relative to large caps seen in recent decades; the sheer scale of the global small-cap universe makes it structurally under-researched; and that thin coverage is compounded by inefficiencies built into how research gets organized globally. Together, these forces have created an environment where patient, well-resourced investors can still find significant mispricings, something increasingly rare in large-cap markets.
Relative valuations are at an inflection point
Historically, small-cap stocks have been a source of durable excess return. Going back to 1927, smaller companies have outperformed large caps by roughly three to four times on a cumulative basis, a record that spans multiple market regimes, currencies, and economic cycles. That long-run edge has never moved in a straight line, however. Since 1980, the relationship between small-cap and large-cap returns has moved through a series of extended cycles, with one side building a commanding lead over the othe...................... To view our full article Click here
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