Smaller companies account for around 67%1 of all listed companies and offer a wealth of choice to investors.
Relative to larger peers, they typically provide exposure to:
- companies that generate a higher proportion of revenues from local markets
- an alternative set of risks
- companies with the potential to grow rapidly.
These distinct features provide strong diversification benefits when added to a large-cap equity portfolio.
Risk and return are two sides of the same coin. The higher risk associated with smaller companies accounts for the return premium that long-term investors may achieve. Smaller companies have outpaced their larger peers by an average of 3%2 per annum since 2000. This occurred across the world’s largest equity markets.
Smaller companies also tend to attract less analyst coverage than their larger peers. This means there may be greater and more frequent discrepancies between their fundamentals and their market valuations. This creates a rich environment for fundamental, active stock-pickers such as ourselves.
At ASI, we offer a comprehensive suite of small-cap equity strategies. We believe stock-specific insights drive returns. As active investors, we therefore build our portfolios from the bottom up. This research-intensive process gives our clients direct access to our best small-cap investment ideas.
1 Source: MSCI 31.12.2020.
2 Source: Morningstar Direct, MSCI ACWI vs MSCI ACWI Small Cap, in USD, 01/01/2000 to 30/06/2021.
Our ESG approach to equity investing
We believe that environmental, social and governance (ESG) factors are financially material and can impact a company’s performance – either positively or negatively. Understanding ESG risks and opportunities, alongside other financial metrics, is therefore an intrinsic part of our research process.
The world is evolving rapidly in the current Covid-19 crisis and ESG factors will be more important than ever. We believe companies that take a wider view of their responsibilities, including all stakeholders – such as employees, customers and suppliers – are more likely to succeed.
We actively engage with the companies in which we invest, sharing insights and encouraging best practice where possible. We combine information from these meetings with the insights of our investment managers, ESG equity analysts and central ESG Investment team. This comprehensive approach means we can build a richer, more holistic view of each company. It also means we can consistently evaluate one company against another.
This approach is all part of our responsible stewardship of our clients’ assets – helping us mitigate risks, unlock opportunities and enhance long-term returns.