The fear of a recession is beginning to be palpable in small-cap companies, which tend to be more sensitive to economic slowdowns. The Russell 2000, the most representative index of this type of company in the United States, falls around 23% in the year, 3 points more than the S&P 500. And the difference is even greater, 9 points, since both marked their respective all-time highs, from where the Russell 2000 plummets 29%.
This worse behavior of the companies is already reflected, also, in the returns of the funds that invest in them, losing, on average, 7 points more in the year than those who choose the large capitalization ones.
In the annual marker of vehicles that seek opportunities in European and American small-cap companies, there are already numbers in the red that amount to 23%, according to data from Morningstar, close to those that the technology funds themselves point to -the great penalty of year, for the -, which left 24.6% in the same period (less than what the indices yield: 32% in the case of European technology and 28% in the case of American technology).
In the case of European small cap funds, some lose more than 30% in the year. This occurs in nine of the 44 products for sale in Spain with profitability data updated to July 11; while in the case of those who invest in American small caps the number of products available is fewer, 19, and in six of them the annual losses exceed 20% (see graph).
In the long term, more profitable
Although the current economic context, , does not favor this type of company, in the long term investment in small companies has turned out to be much more profitable than that made in large ones, since since the year 2000 the MSCI World Small Caps index has been posted a return of 282% (6.13% annualized) compared to 80% achieved by the MSCI World in the same period (2.62% annualized).
As early as 2021, by contrast, “small- and mid-caps underperformed large-caps, based on the (not always accurate) perception that big equals safest,” says Kirty Desson. , Investment Director of Small Caps at Abrdn. “This means that there is now an opportunity to invest in quality small and mid-cap companies with the potential to weather economic cycles. These companies are available at attractive valuations. However, in today’s unpredictable environment, we are aware that Investors may have concerns about the risks of investing in small-cap companies compared to large-caps,” he adds.
These doubts are also observed in the money outflows that these products accumulate in the year in Europe, of more than 2,500 million euros in the case of European small caps, and 1,000 million in that of small caps Americans, according to the latest data available in Morningstar, at the end of May.
However, “the only time small-caps were as cheap relative to large-caps was during the tech bubble,” Jill Carey Hall, US equity strategist at Bank of America, told Wall Street. StreetJournal. The Russell 2000 earnings multiplier, with earnings expected next year, stands at 16.32 times versus 15.34 times for the S&P500, according to Bloomberg. In their favor they also have that they are less exposed to changes in monetary policy by central banks than the large, more internationalized ones, which are affected by currency changes.
The case of the Spanish
The small values of the Spanish stock market also correct more from annual maximums than the large ones. From the peak they fell 13.75% compared to 10.81% for the Ibex, although in the year the small caps maintained their advantage, of 2.8 points, by containing losses to around 5.8%. If the year closes right now, it would be the first in which these listed companies would close in negative since 2018, another turbulent year in the market. Then they fell back 7.5%.
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