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.
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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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Related insights
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.