UK - Trustees should invest in small-cap stocks to reduce their portfolio risk and increase returns, delegates were told.
Schroders smaller companies and FTSE250 fund manager Andy Baugh told delegates that schemes must disregard the “conventional wisdom” that large-cap stocks – companies belonging to major indices such as the FTSE100 – produce steady growth and that the asset class offers sufficient diversity to investors.
To illustrate his argument, he said that since their high points in March 2000, BT had fallen 80% in value while Vodafone’s stock had dropped 62.5%. He also pointed out that at the start of the year, stocks within the top four sectors made up 60% of the FTSE100, whereas firms within the top four sectors made up 39% of the FTSE250.
He added that small-cap stocks had consistently outperformed their large-cap peers over the past four years and that while the FTSE100 was dominated by the same big names – such as HBOS, HSBC, BP and Shell – the top 10 stocks in the FTSE250 change constantly.
Baugh said: “What people believe is that bigger is better. But it is not the size that matters, it is what it does in your portfolio that counts. Big isn’t necessarily better. Remember, an index is only as good as its constituent parts.”
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