- The market is looking less hostile towards smaller companies, paving the way for a possible rebound
- While not so numerous, there are some promising global funds out there
An era in which interest rates are higher, and where some of the world's biggest companies continue to drive the bulk of market returns, has not exactly proved beneficial for small-cap investors. But as with certain other assets (think bonds) the tide may now have turned if we accept the premise that rates have already peaked and that the economy more generally looks in better shape. What's more, the difficult period already endured means many small-cap valuations look attractive, meaning they offer some potential upside.
An improvement may have already started to materialise in the UK, where the FTSE Small Cap index is up by 10.8 per cent over a 12-month period, not far behind the similarly impressive gains achieved by the FTSE 100 and the FTSE 250 mid-cap index. "Cheap" forms of exposure are still available here, ranging from the investment trust space – where the average fund in the Association of Investment Companies (AIC)'s UK Smaller Companies sector trades at a discount of around 11 per cent to net asset value (NAV) – to the many open-ended funds delving down the market-cap spectrum. Further gains may be there for the taking even after the recent rally.