by Val Cipriani, Investors Chronicle, May 30, 2025:
Small-cap companies outperform large caps in the long term – or so the traditional thinking goes.
Their size means they have high growth potential, and they are often misunderstood or ignored by other investors, meaning they can be mispriced. Holding the right selection of smaller companies should give your investment portfolio a serious boost, assuming you have the patience to sit tight through the inevitable ups and downs.
This theory, which was consistently proven right through history, has faltered in more recent years..
But Mick Gilligan, head of managed portfolios at Killik & Co, argues that Japan is “the stand-out small-cap market” due to cheap valuations and solid growth prospects.
“The MSCI Japan Small Cap Index trades on 8.8 times next year’s earnings, falling to 6.4 times the following year,” he says..
Carthew likes AVI Japan Opportunity. “It has had a run of success, but the managers are doing a good job of recycling the portfolio from past winners into new opportunities. We believe that there is much more to go for the strategy,” he says.
European and Asian small caps also have their merits.
Investing in European small caps is about getting exposure to more nimble businesses that operate in more exciting sectors compared to the large-cap European market, which has a lot of globally-oriented companies..
Montanaro European Smaller Companies (MTE) is an option, with an incredibly strong 10-year record. Interestingly, 27 per cent of its portfolio is invested in the tech sector, against its benchmark’s 8 per cent. Carthew says: “Montanaro can boast one of the biggest teams, or maybe the biggest team, focused on this area. Its focus on quality growth should shine through again.”
Read more here