Investors who ignore international small-cap stocks in their global allocation may be doing so at the cost of risk-adjusted performance. Canterbury believes that a current opportunity exists in the asset class due to its attractive return potential and diversification benefits.
An Overlooked Asset Class
U.S. investors may be neglecting an important area of the global stock market. According to Morningstar Direct data on total assets in Morningstar categories as of June 30, 2019, only around 2 percent of mutual fund assets in the U.S. are invested in international small- and mid-cap stocks, while 7 percent of assets are invested in U.S. small-cap stocks. However, there are more than twice as many international small-cap stocks, accounting for more than double the overall market value compared to U.S. small-cap stocks. If a goal is to maintain comparable exposure to the global equity market, then international small-cap stocks deserve at least as much capital, if not more, than U.S. small-cap stocks.
Read Canterbury's white paper: International Small-Caps.