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A diversifying opportunity: The case for small cap investing

In the evolving landscape of investment opportunities, small-cap equities stand out for their potential to enhance and diversify portfolios. As global economic and supply chain dynamics shift, smaller companies offer investors unique growth prospects and greater prospects for diversification than during previous market cycles.

Apr 2, 2025
5 minute read

Key takeaways:

  • Diversification and growth potential: An allocation to small-cap equities can enhance a portfolio’s diversification, tapping into a vast pool of growth opportunities in major markets like the US, Europe, and Japan.
  • Structural advantages: Small caps offer M&A target benefits, lower concentration risks, and are often under-researched, leading to potential mispricing opportunities that can benefit informed investors.
  • Resilience and valuation appeal: Small caps are well positioned to capitalise on the ongoing shifts in global supply chains, including trends towards near-shoring, due to their agility and localised market focus.

Smaller companies (small caps) are a segment of the global financial market comprising firms with a market capitalisation typically between USD$300 million and USD$2 billion. They are represented across a wide range of industries and can be innovative and agile, adapting quickly to market changes.

By focusing on growth through reinvesting profits, smaller companies can offer higher returns over time and diversification benefits for investors relative to their larger peers, although they also require careful research to consider and address any associated risks.

This paper explores the strategic benefits of an allocation to small-cap equities, highlighting their responsiveness to supply chain changes and their capacity to capitalise on emerging market trends.

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Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
 
 
The information in this article does not qualify as an investment recommendation.
 
 
For promotional purposes.
 
 
Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.
Apr 2, 2025
5 minute read

Key takeaways:

  • Diversification and growth potential: An allocation to small-cap equities can enhance a portfolio’s diversification, tapping into a vast pool of growth opportunities in major markets like the US, Europe, and Japan.
  • Structural advantages: Small caps offer M&A target benefits, lower concentration risks, and are often under-researched, leading to potential mispricing opportunities that can benefit informed investors.
  • Resilience and valuation appeal: Small caps are well positioned to capitalise on the ongoing shifts in global supply chains, including trends towards near-shoring, due to their agility and localised market focus.