Equities have had a torrid time over the last 12 months, with America’s S&P 500 index slumping by nearly a fifth and the FTSE All-Share falling by 7%. However, while all investors have suffered, those holding smaller companies have done particularly poorly.
The Russell 2000, traditionally used as a proxy for the smaller end of the US market, fell by 25%, while the FTSE Small Cap index has also lagged UK large caps, dropping by more than 20%. Those who have invested in Aim (formerly the Alternative Investment Market), the home of the smallest listed companies in the UK, have seen the overall index decline by over a third in price. Despite the current gloom, however, you shouldn’t give up on smaller companies. There are compelling reasons to stick with them.
Outperforming Goliath
The main reason to hold small- and micro-cap shares (those with market capitalisations of less than £1bn and £100m respectively) is that they tend to do better than their larger counterparts. Multiple studies have shown “that over the long run, they provide higher returns”, says Hywel Franklin, manager of the Mirabaud Discovery Europe fund.
This is true in the UK, and “a similar pattern
