The Case for Investing in Global Small Caps

Small-cap stocks can help provide portfolio diversification.

August 2018: Market Perspective

While investors' home country holdings may represent various sectors and market capitalizations, international holdings are often concentrated in large-cap companies and developed markets.

Taking a global approach to investing in small-cap stocks can offer diversification and performance potential through exposure to a greater opportunity set and the inherent inefficiencies of global small-cap markets.

Home country bias

Small-cap portions of many investors' portfolios are concentrated in stocks from their home countries. Recent net asset flow data, however, show that investors have been increasingly choosing a truly global mandate for small-cap equity allocations.

Larger opportunity set

Global small caps offer expanding opportunities that allow investors to manage exposure to multiple markets, regions, and companies.

Outperformance potential

Small-cap stocks have historically outperformed their large-cap counterparts, and data suggest this is true globally. A global approach to investing in small caps may also help improve risk-adjusted returns.

Size premium

A size premium for small caps compensates investors for the additional risks inherent in small companies, including firm size, liquidity, company information, and idiosyncratic risks.

Small-cap markets are inherently less efficient than large-cap markets, due to less analyst coverage and generally lower levels of available information. This relative inefficiency creates opportunities for active managers.

Diversification

In addition to outperformance potential, global small caps offer portfolio diversification benefits through low correlations to global large caps and other global indices.

Trevor Gurwich

Trevor Gurwich

Senior Portfolio Manager

 

Jim Shore

Jim Shore, CFA

Client Portfolio Manager

The Case for Investing in Global Small Caps

August 2018: Market Perspective

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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

This information is for educational purposes only and is not intended as a personalized recommendation or fiduciary advice. There are different options available for your retirement plan investments. You should consider all options before making a decision. Our representatives can help you evaluate all of your distribution options.

Data assumes reinvestment of dividends and capital gains. The value of your investments can fluctuate. Past performance does not guarantee future results.

Diversification does not assure a profit nor does it protect against loss of principal.

International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

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