In 10 of 13 European countries fund selectors prefer small caps over large caps. European small cap companies have indeed performed significantly better over the past years than their larger peers.
While that may largely explain fund selectors’ preference for the asset class, Schroders’ European equity manager Steve Cordell warned at Expert Investor Germany last month that they might do well shifting their preference to large caps, noting the latter are now at a 30-year low versus small caps valuation-wise.
The preference for small caps is greatest in Norway, where none of the surveyed fund selectors prefer large caps while 52% favour small caps, and Sweden. In the latter country 57% even have a preference for smaller companies.
Only in three of 13 surveyed countries fund selectors favour large cap companies, but the bias towards bigger companies is very strong there. In Spain, 59% prefer large caps, while only 18% favour small caps.
In The Netherlands and France, the large cap bias is almost just as outspoken, though small caps in two of three countries have outperformed large caps over the past 5 years. The only exception is The Netherlands, where two times more fund selectors prefer large caps than small caps. Here, the main AEX-index has outperformed small caps by almost 9 percentage point over the past 5 years, while also showing a lower volatility.