Small caps: Bucking the wider economic trend?

Before the credit boom, professional investors routinely allocated 10% or more of their portfolios to small-cap stocks, writes Andrew Morgan, portfolio manager at Walker Crips.

This seems entirely sensible, as numerous studies have shown that small caps outperform their larger peers over the long term. Yet during the years of ballooning debt, allocation to smaller companies declined markedly in portfolios, as investors achieved higher - but as we now know, less sustainable - returns elsewhere. Economic trends have, of course, changed, so we can expect market trends to change too. With global growth likely to be much lower in the coming decade, we believe there will be a structural shift back into smaller companies. History shows us that in low-growth envi...