Data stretching back to the 1950s reveals a “smaller-companies effect”: small stocks outperform larger ones around the world. They are less liquid, riskier and less well-known than their bigger counterparts – outperformance compensates for these shortcomings.
In recent years, though, smaller companies have been left behind. In the UK, for example:
- The Numis index, comprising the bottom 10% of the market, has returned 11% over the last three years and 5% over five.
- The All-Share index has returned a respective 34% and 23%.
- The MSCI World Small Companies index has returned 15% in sterling over three years and 28% over five.
- The All Countries World index has returned 24% and 52%.
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