Talking Point  

Advisers expect small cap outperformance

 Advisers expect small cap outperformance

The coming economic recovery is likely to lead to the outperformance of smaller company shares, according to the latest FTAdviser poll.

The poll was conducted via FTAdviser’s Twitter account. The result was that almost exactly two-thirds of those who responded believe small caps will outperform relative to larger companies, while around one third expect large caps to perform best. 

Many smaller companies operate in areas of the market where the performance of the wider economy has a material impact on the performance of individual companies, so any substantive rebound in economic growth is likely to disproportionately help smaller company shares relative to many of the larger companies that have performed best over the past decade.

The shadow hanging over markets in recent months has been that of inflation, leading to higher bond yields, and higher yields tend to negatively impact many of the larger company equities in areas such as technology, which will earn much more of their cash in future, rather than now.

An investor in a government bond gets paid today, so if yields rise, the investor in growth equities, who gets paid far into the future, is sacrificing more today.