- Small caps could get rate pause boost
- Mid-sized and smaller companies often outperform after recessions
One of the most distinct market trends of the past few years has been the lagging performance of small-cap shares. These companies traditionally commanded premiums of up to 50 per cent over their larger cousins, but now find themselves at a global valuation discount.
For instance, no one could accuse the FTSE 100 of outperforming in 2023 with the index returning 4 per cent for the year, compared to the Dax on 19 per cent or S&P 500 on 24 per cent. However, this weakness is nothing compared with the lagging performance of UK small-cap shares, traditionally a source of alpha for investors with a greater appetite for risk. Yet the FTSE Small Cap index is now worth 1 per cent less than at the start of 2023. The Aim 100 fell 7 per cent last year.