Blackrock has announced the launch of a new global smaller companies strategy, offering UK investors the opportunity to “capitalise on the high alpha potential within the smaller companies universe”.
Co-managed by Matt Betts and Dan Whitestone from the Blackrock’s emerging companies team, the fund follows a fundamentals-driven approach and invests in companies with defensible market positions, competitive products and structural growth drivers. It is benchmarked against the MSCI World Small Cap index.
According to the press release, active management is “key” for small-cap funds, particularly as dispersion of returns can be high in this under-researched universe.
Whitestone said: “As active managers, we believe small-cap stocks can present us with the most attractive hunting ground as these companies tend to operate in an inefficient, under-researched area of the market and can offer the potential to generate returns for our clients over the long term.”
Another advantage of smaller companies are their cheap valuations, Betts said, with small-caps now trading at the all-time-high discount to large-caps of approximately 26%; additionally, they are expected to provide sustainable returns in the long term too.
“Alongside the attractive valuation opportunity right now, we believe that small-cap funds can provide excellent long-term investment due to their historic outperformance compared to large-caps,” Betts said.
Finally, the investment team said interest rates coming down in 2024 will “act as a potential catalyst for investors to reappraise the valuation opportunity in both absolute and relative terms”.