Finding value in the 'elevated' small-cap sector

Finding under-valued smaller stocks is often the biggest challenge for investors.

2014 was only the fourth year in the past 15 that small-caps underperformed large-caps with the MSCI All Country Small Cap index delivering gains of 160% since 2000 compared to a mere 14% for the large-cap equivalent. This means the small-cap universe currently trades on a lofty P/E of 26x versus 18x for large caps and makes stock selection even more vital. A long-term investment horizon is often key as it may take several years for revaluation triggers, such as product development or corporate action, to occur. A characteristic of many smaller companies is innovation and the developm...