For much of the past 15 years only one trade has mattered in global equities – US large caps. Over time US mega-cap tech companies grew and grew and, like giant planetary bodies, they pulled more and more capital into their orbits. Investors grew richer and richer and more and more money flowed in until US exceptionalism became an unquestioned truth. Towards the end of 2024, the US stock market made up more than 60% of global market capitalisation1, its highest point in more than 40 years2.
Things have changed in 2025. The global macro-economic and geopolitical landscape has gone through its most intense period of change in decades. Unquestioned truths are being questioned. Mega cap tech has lost its lustre and many investors are considering alternatives. So far in 2025, global equities have out-performed US equities, and the Magnificent 7 have significantly underperformed the broader S&P 5003.
While some investors are turning to European equities or emerging markets, or switching asset classes to fixed income, one area which hasn’t attracted as much attention is global small and mid-cap equities (global SMIDs). Global small-mid caps have historically outperformed large caps4, with similar volatility and income yield5, however their share prices have underperformed significantly for much of the past five years as the Magnificent 7 swept all before them. Right now they are considerably cheaper than large caps, but with similar growth prospects. Also, with a universe of more than 7,000 stocks there is a much greater opportunity for investors and active managers to outperform.
This paper examines the overall attractiveness of global small-mid caps for investors, as well as whether now may be a good time to allocate to this asset class.
Global small-mid caps have out-performed large caps, until recently
If you invested $10,000 in global SMID caps (MSCI ACWI SMID) in January 2001, by the end of March 2025 your investment would have grown to $52,148. Whereas $10,000 invested in the comparable global large cap index (MSCI ACWI) over the same timeframe would have grown to $40,121 – a difference of $12,027
Growth of $10,000