Equities Highs and lows: the valuation question
How worried should investors be when gauging the likelihood of small-caps’ continued outperformance?
12 July 2021
Is now the time to consider small-caps?
Small-cap performance has been conspicuously strong since the COVID-19 crisis sent indexes tumbling in March 2020.
Small-cap stocks often fail to gain the investment attention they perhaps deserve. Their appeal is frequently either underappreciated or overlooked, not least when the dominant narrative routinely revolves around the attractions of Big Tech behemoths with trillion-dollar market capitalisations.
Yet small-cap performance has been conspicuously strong since the COVID-19 crisis sent indexes tumbling in March 2020. On a global basis, small-caps have bounced back by 112% – versus 81% for global equity markets as a whole – with the US leading the way and emerging markets also starring. Even the laggards, Japan and the UK foremost among them, have produced substantial gains during this period.
It is not uncommon for small-caps to blaze such a trail. Since the turn of the century they have beaten their larger-cap counterparts by a sizeable margin, generating a total return significantly in excess of 500% – more than twice that of the overall market.
So could now be a favourable time for those who have traditionally steered clear of this sector to take a closer look at the small-cap universe? Is the marked outperformance of the past year likely to prove an aberration or a sign of things to come?
Webinar replay
Valuation: Is now the time for Small Cap?
Valuation: Is now the time for Small Cap?
Valuation: is now the time for Small Cap?
Listen to our recent webinar when Michael Joynson, Head of Marker Insights was joined by a panel of our small cap experts:
- Eric Esselink, Fund Manager, European Smaller Companies and Global Smaller Companies
- Robin West, Fund Manager, UK Smaller Companies
- Juan Hartsfield, Portfolio Manager, US Smaller Companies
Insights
The below articles draw on our recent webinar with Michael Joynson, Head of Market Insights and fund managers Erik Esselink, Robin West and Juan Hartsfield.
EQUITIES Invesco’s approach: smaller companies
Valuation is not the only consideration that is taken into account when constructing Invesco’s small-cap strategies.
July 12, 2021
EQUITIES Risks and opportunities
It is essential to understand the challenges, especially at a time when the world has experienced an unprecedented global shock that has been met by a raft of extraordinary policy responses.
July 12, 2021
EQUITIES Small cap, big picture
Historically, small caps outperformed large caps for several years into a new business cycle, and this one is no exception.
July 12, 2021
The funds
Smaller companies are a specialism where Invesco has a long heritage, both in Henley and across our other investment centres around the world. You can find out more about our product offering:
Investment risks
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The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.
Invesco Global Smaller Companies Fund (UK)The Fund may use Stock Connect to access China A Shares traded in mainland China. This may result in additional liquidity risk and operational risks including settlement and default risks, regulatory risk and system failure risk.
The fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its investments, reduce the costs of investing and/or generate additional capital or income, although this may not be achieved. The use of such complex instruments may result in greater fluctuations of the value of the fund. The Manager, however, will ensure that the use of derivatives within the fund does not materially alter the overall risk profile of the fund.
The fund invests in smaller companies which may result in a higher level of risk than a fund that invests in larger companies. Securities of smaller companies may be subject to abrupt price movements and may be less liquid, which may mean they are not easy to buy or sell.
Although the Fund invests mainly in established markets, it can invest in emerging and developing markets, where there is potential for a decrease in market liquidity, which may mean that it is not easy to buy or sell securities. There may also be difficulties in dealing and settlement, and custody problems could arise.Invesco UK Smaller Companies Equity Fund (UK)
The fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its investments, reduce the costs of investing and/or generate additional capital or income, although this may not be achieved. The use of such complex instruments may result in greater fluctuations of the value of the fund. The Manager, however, will ensure that the use of derivatives within the fund does not materially alter the overall risk profile of the fund.
The fund invests in smaller companies which may result in a higher level of risk than a fund that invests in larger companies. Securities of smaller companies may be subject to abrupt price movements and may be less liquid, which may mean they are not easy to buy or sell.
Invesco European Smaller Companies Fund (UK)The fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its investments, reduce the costs of investing and/or generate additional capital or income, although this may not be achieved. The use of such complex instruments may result in greater fluctuations of the value of the fund. The Manager, however, will ensure that the use of derivatives within the fund does not materially alter the overall risk profile of the fund.
The fund invests in smaller companies which may result in a higher level of risk than a fund that invests in larger companies. Securities of smaller companies may be subject to abrupt price movements and may be less liquid, which may mean they are not easy to buy or sell.
Important information
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This document is for Professional Clients only and is not for consumer use.
All data is as at 30/06/2021 and sourced from Invesco unless otherwise stated.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.This website is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.
For the most up to date information on our funds, please refer to the relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the Annual or Interim Reports and the Prospectus, which are available using the contact details shown.
Issued by Invesco Fund Managers Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.
