Indeed, in the 2013 study we found that active eurozone smid-cap managers handily beat their respective indices in most periods. HSBC attributed this to the lower coverage of smids compared with large caps.
But in the past five years we have found that smid-cap managers are still beating their indices, but not to the same extent as before. Whatever the reason for this, the higher inefficiencies in the smid-cap market can create ample outperformance opportunities for the well-informed stockpicker.
European smids are often overlooked in an allocation to European equities. But the exact allocation depends on the individual investor.
History and common sense show that combining a meaningful level of smid caps with large caps serves to reduce overall risk and increase returns over time.
Meike Bliebenicht is senior product specialist in HSBC Global Asset Management’s multi-asset team