Over the long term there is a greater potential for volatility in small-cap funds than their larger-cap peers.
Small caps tend on aggregate to outperformed large caps across an economic cycle. Over the past 10 years, Alain Caffort, co-manager of the Pictet Small Cap Europe fund, says European smaller companies outperformed European larger companies by 3.7 per cent annualised.
The performance of European smaller companies is measured by the MSCI Europe Small Cap Net TR index. European Larger Companies performance was measured by the MSCI Daily Net TR Europe Index.
The figure stated above is based on data collected from 31 May 2005 to 31 May 2015 in euros.
Ultimately, Ollie Beckett, manager of Henderson Horizon Pan European Smaller Companies fund, says advisers should be aware that an individual fund’s performance should depend on a combination of timing – investing when share prices are below their long-term average – and stock selection.
Laurent Inglebert, investment manager at Aberdeen Asset Management, says his objective for Aberdeen’s European Smaller Companies fund is to outperform the HSBC Smaller Companies Europe by 3 per cent gross a year on a rolling three-year basis.
He says Aberdeen does not manage the fund to specific ex-ante tracking error and volatility targets, but have set an upper tracking error ceiling of 9 per cent.
Mr Inglebert adds he would consider 3 per cent a minimum return given his active style.
