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.
This paper examines the strategic case for allocating to small‑cap equities, focusing on their agility in responding to supply chain realignments and their potential to benefit from evolving market trends and innovation‑driven growth.
By focusing on growth through reinvesting profits, smaller companies can offer higher returns over time and diversification for investors relative to their larger peers, although they also require careful research to consider and address any associated risks.
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