Nigel Douglas, Chief Executive Officer, of Douglas Funds Consulting Pty Ltd, drawing on statistical analysis by asset allocation specialist research firm Heuristic Investment Systems, carried out in-depth research as to why investors are directing their attention to global small-cap equities.

Among the key research findings:

• A standalone allocation to global small-caps of 5 per cent is justified for a typical ‘balanced’ Australian institutional portfolio (including large-cap global equities, emerging market equities and domestic small-cap equities) from a strategic asset allocation perspective, relative to other asset classes.
• There is a definite opportunity for active managers to add value given the breadth of investment opportunities.
• Global small caps ex Australia (in Australian dollar terms), on average, have outperformed global large caps by about 4.2 per cent a year over the past 15 years (to 29 January 2016) with their respective volatility not that dissimilar.
• The top quartile of investment managers in this asset class have consistently beaten the index by about 3 per cent (gross of fees) over 5 and 10 years with some highly ranked managers doing even better.

Read the white paper here.

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