In January, commentators began flirting with the prospect of a UK small-cap rally. This burst of optimism followed a difficult period for these stocks: the Numis Smaller Companies Index (NSCI), which tracks the bottom 10 per cent of the UK main market, lost 17.9 per cent in 2022, ignoring the impact of investment companies. The Numis Alternative Markets index, which includes Aim stocks, had an even grimmer time, falling by almost a third.
Seven months later, domestic small-cap outperformance has yet to materialise, but smaller companies across the world are gathering even more interest. Analysts at MSCI noted last month that small-cap firms have “historically outperformed larger ones, especially after recessions and over longer holding periods”. Given the International Monetary Fund is forecasting a global economic slowdown later this year followed by a rebound in 2024, MSCI suggested that this pattern was worth paying attention to.
