US - A revolution in management styles should lead to growing returns on small caps companies, US fund manager Putnam Investments predicts.
Putnam claims to have spotted the development ahead of other fund managers and has started marketing its global small caps fund to UK pension funds.
Putnam Investments managing director Joseph Joseph said that the advances in business management style adopted by large cap companies had started to trickle down to small caps.
These improvements mean that many small cap stock are selling below their true worth, according to the firm.
Joseph said: “We believe that small caps will continue to outperform large caps as they have done in 1999 and 2000 and we believe they will continue to do that for the next two to three years.”
Bacon & Woodrow partner in the investment practice Kerrin Rosenberg said: “Small companies have performed better than larger companies, but there can be quite extended cycles to this.
“You can have ten year periods when small caps provide pretty poor returns and conversely ten year periods when the opposite happens – these cycles can be quite painful.”
Lane Clark & Peacock principal in investment, Philip Boyle, said: “Small cap stocks are less liquid, more susceptible to shocks, less researched by investment houses and include a number of troubled companies that were once large cap.
“They are, therefore, more risky than large cap stocks. In an efficient market, this extra risk warrants a return premium above the large cap stocks.”
Boyle warned: “We have just had two years of out performance from small cap and it may be now too late to jump on the band wagon.”
By David Rowley
Most respondents in this week's Pensions Buzz do not think businesses should be able suspend AE contributions if in financial distress.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers