Bottoming equity market gives lift to smaller companies

Many groups have reduced their exposure to small caps recently but investors shouldn't forget that they tend to perform better than larger companies during times of economic growth or recovery

A number of funds have recently been reducing their exposure to small companies. To us this looks like a questionable strategy. Small companies tend to outperform large companies during times of economic growth or recovery, and underperform during periods of decline. Consequently, indicators of economic growth are frequently used as a guide to prospective small company relative performance. A customary indicator is the slope of the UK yield curve. Small companies tend to outperform as short rates decline relative to long rates because the relative strength of long rates is seen as ant...