Nick Sheridan

Key takeaways

• Market returns have been dominated by a narrow group of large-cap stocks, increasing concentration and limiting diversification.
• As market leadership broadens in a period of greater geopolitical uncertainty, smaller companies are responding more quickly to improvements in sentiment, highlighting a shift away from the narrow dominance of mega-cap stocks.
• Global smaller companies are under-owned and under-researched, offering greater potential for bottom-up stock pickers to identify mispriced stocks and earlier-stage higher-growth opportunities.

Markets started 2026 on an uncertain footing, pulled in different directions by geopolitical instability. The conflict in the Middle East, which began at the end of February, brought energy markets back into stark focus. Blocked supplies through the Strait of Hormuz pushed oil prices higher and raised fresh concerns about inflation just as central banks were attempting to stabilise growth.

For investors, this has created a challenging mix of risks and uncertainties. Risk appetite has weakened as attention has become fixed on the conflict and its implications. Meanwhile, expectations for fiscal and monetary policies have shifted. Higher energy prices have complicated the outlook for interest rates. The uncertainty of government policy announcements via social has led to rapid swings in sentiment. The path to a lasting resolution remains obscured.

Despite this backdrop, one notable feature of recent market behaviour has been the resilience of global smaller companies. This is typically the part of the market that struggles when uncertainty is elevated and policy is restrictive. In our view, this reflects modest starting valuations, positive earnings expectations, and a gradual shift in how investors are approaching markets. But even periods of tentative improvement in sentiment have seen investors look beyond the most heavily owned areas, suggesting that attention is no longer as narrowly focused as it once was.

A turning point for market concentration

Over the past decade, market returns have been dominated by a small group of large-cap technology companies (ie. the ‘Magnificent 7’ – Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla). At the same time, higher interest rates, macro uncertainty, and a preference for liquidity has favoured larger, more resilient businesses. Combined with passive flows, this has created an increasingly concentrated market, turning investor allocations into a tacit call on technology stocks.

What appears to be changing is not a sudden reversal but a gradual broadening of leadership. The focus is shifting from owning what has worked to reassessing where future returns may come from. It has been driven by a subtle change in behaviour, with investors showing greater sensitivity to valuation, a more questioning approach to crowded trades, and growing awareness of how concentrated portfolios have become, particularly at a time of heightened geopolitical uncertainty.

The dominance of the largest companies has not disappeared, but it is no longer unquestioned. Artificial intelligence remains a powerful structural theme, yet investors are starting to look beyond the most obvious beneficiaries, to smaller companies exposed to adjacent areas of growth.

At the same time, the earnings picture for smaller companies is improving. Combined with more modest starting valuations relative to global large caps (Exhibit 1), we believe it supports the conditions for a re-rating, even in an uneven market.

Different regions, different strengths

Much like their larger counterparts, global smaller companies provide exposure to a diverse set of local economies and sector opportunities. Unlike large multinationals, however, they tend to be more closely tied to domestic or regional growth, which can be an advantage in a more fragmented geopolitical environment. They also tend to be more entrepreneurial and agile, often driving advances within specialised niches, rather than at scale.

Another defining feature is how little attention they receive. Smaller companies are typically under-owned and under-researched, with materially less coverage from stock analysts. A combination of less scrutiny and more varied outcomes creates opportunity for active investors taking a selective approach. Particularly so, given how strong earnings forecasts are for smaller companies relative to their large-cap peers[1].

But there are also important differences across regions, offering built-in diversification within the small-cap category. In the US, deep capital markets and a strong culture of innovation support a broad pipeline of companies across technology, healthcare, and specialised industrials. In Europe, the market is more weighted towards industrials, manufacturing, and niche export-led businesses. Many of these have strong technical expertise and pricing power, alongside tailwinds from defence and infrastructure spending.

Japan offers another distinct profile, characterised by high-quality industrial and technology businesses. Improving corporate governance and a greater focus on shareholder returns are helping to unlock value in companies that have historically been overlooked.

Market inefficiency equals opportunity for active investors

Global smaller companies remain one of the few areas of genuine inefficiency in equity markets. Limited analyst coverage and the diversity of the opportunity set mean there is real scope to add value through detailed research and engagement.

This increases the value of information in the small cap space, given that outcomes in smaller companies are driven more by stock-level factors than by broad market movements. Sector and stock dispersion is wide, meaning the gap between winners and losers can be significant. This makes a research-led, data-driven approach essential, with a focus on characteristics such as return on equity, balance sheet strength, and the sustainability of earnings.

For investors willing to take a longer-term view, this part of the market offers exposure to businesses earlier in their growth journey. After all, many of today’s dominant companies, such as Nvidia, began as small caps. This is not to overlook the risks; smaller companies can be more volatile and more sensitive to economic cycles. Navigating these risks requires a disciplined, structured approach to stock selection.

Overall, we believe that global smaller companies continue to offer a compelling opportunity set. In a market long dominated by a narrow group of large-cap stocks, they provide diversification, exposure to innovation, and access to domestic growth trends across regions. The macro environment remains uncertain. However, for investors focused on fundamentals, the breadth of opportunities within global smaller companies remains significant.

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Notes:
[1] Source: Bloomberg, Janus Henderson Investors, as at 9 April 2026. There is no guarantee that past trends will continue, or forecasts will be realised. Past performance does not predict future returns.

References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

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Nick Sheridan

Janus Henderson Investors has announced the Australian launch of the Janus Henderson Global Smaller Companies Fund.

The newly launched fund aims to provide Australian investors with access to potential growth opportunities by investing in smaller companies across the globe.

It contains an exposure to Australian small cap companies of 5.4%, which is higher than the benchmark MSCI World Small Cap Index at 3.8% (as at 30 September 2025). It includes Australian companies such as JB Hi-Fi which Janus Henderson Investors assesses as potentially offering above average returns compared to other small caps around the globe.

The fund is designed to capitalise on the advantages of investing in smaller companies, which often exhibit higher growth rates and greater corporate agility compared to larger counterparts. The fund will be managed by Nick Sheridan, a seasoned portfolio manager with over 30 years of experience in funds management.

Commenting on the launch, Sheridan said: “Investing in global small-cap companies can offer several advantages for investors, including diversification benefits due to the wide selection across various industries and sectors and the potential for significant growth opportunities. We look for good quality but potentially undervalued companies and believe that the current market environment presents a compelling opportunity for investors to gain exposure to this dynamic segment.”

The Janus Henderson Global Smaller Companies Fund will be available to both retail and institutional investors in Australia. The fund defines smaller companies as those with market capitalisation within the range of companies included in the MSCI World Small Cap Index. It can invest in any industry, in any country within the Index.

Matt Gaden, Head of Australia at Janus Henderson Investors, expressed his enthusiasm for the new fund: “Janus Henderson Investors is committed to creating and developing innovative strategies to better service its clients. We see real opportunities to bring our best investment talent in global equities to the Australian market. The launch of the Global Smaller Companies Fund is a testament to our dedication to providing Australian investors with access to high-quality, actively managed investment solutions to achieve their financial goals.”

This latest launch further enhances Janus Henderson’s existing suite of investment offerings available to Australian investors, including the Janus Henderson Global Research Fund and the Janus Henderson Global Sustainable Equity Fund, reinforcing the firm’s commitment to delivering a diverse range of products tailored to local market needs.

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