Can small caps maintain outperformance over large caps?

Strong structural growth and domestic earnings

In spite of a favourable economic back-drop, small-cap performance petered out, as earnings upgrades failed to materialise.

Coming into 2015 small caps were out of favour, despite offering good value. However, they have gradually gained momentum as the year has progressed and have held up relatively well since late summer, when larger stocks were affected by concerns over the impact of China's slowdown on global economic growth. Firstly, they are more heavily weighted to the UK economy, which is showing reasonable growth. Low inflation (in part due to falling oil and commodity prices) and modest wage rises provide a helpful back-drop for further domestic growth. Secondly, large stocks, by virtue of their s...