With markets hitting new highs despite a host of issues concerning investors, the consensus trade has been to gravitate towards the perceived safety of big companies when investing in equities. However, in looking to the long term, smaller companies should continue to benefit not only from their natural advantages, but also from more secular changes not yet fully appreciated by the market - changes that will enhance the already healthy rewards in prospect for appropriately positioned portfolios.
Natural advantages
The long-term performance figures continue to remind us of the merits of smaller companies. Recent statistics confirm that money invested on a total return basis in the bottom 10 per cent of the UK market in 1955 would be worth more than five times as much as the returns available from UK shares generally. Portfolios have had to endure volatility to access these gains - the FTSE Small Cap index dropping 43.9 per cent in 2008, only to bounce 54.3 per cent the following year - and this volatility has at times discouraged investors.