Global Small- and Midcaps: An Overlooked and Under-Allocated Asset Class

Why should investors consider an allocation to global small and midcaps?

Nick Paul:

The main reason that investors should consider an allocation to global and small, midcaps today is really that, whether investors are aware of it or not, they simply don't have exposure to the asset class like they would have maybe just 10 or 15 years ago. And let me explain a little bit what I mean there. Basically, what I mean there is if you went back to just post the global financial crisis back in 2010 and looked at standard benchmarks, so say the MSCI, All Country World Index, and looked at the weighted average market cap of that benchmark, the weighted average market cap of that benchmark, again just about 15 years ago, right around $50 billion market cap in US dollars.

Fast-forward to today, that benchmark is actually over $500 billion in weighted average market cap. So 15 years ago you could make an allocation to standard benchmarks and you would get plenty of exposure to smaller and midcap companies. Today, because of the rise of mega-cap technology companies in these standard benchmarks, you've really just been squeezed out of the exposure to small and midcaps. So unless you have a dedicated allocation to an asset class that historically has strongly outperformed large caps, you're just not going to get it in standard benchmarks today. Which brings me to another point. It's really not about trying to time this market. It's really about taking a long-term strategic allocation to small and midcaps as opposed to a tactical allocation. Over time, small and mid has proven to outperform large caps. And timing in the market is incredibly, incredibly difficult to do. So I always say it's really about time in the market versus timing the market.

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