Trustnet Magazine 87 September 2022 | Page 35

Small caps

While small caps tend to deliver higher returns than their larger counterparts over the long term , analyst coverage tends to be lower

beaten the Russell 2000 benchmark . However , just four of 10 active funds had beaten the index , meaning six underperformed . Alena Kosava , AJ Bell ’ s head of investment research , says this is because passive strategies tend to work well in bull markets , periods of ample liquidity and when crosssectional volatility is low . Richard de Lisle , manager of the VT De Lisle America fund , says one challenge specific to small-cap managers operating in the US comes from more focused ETFs , such as those aligned with the iShares S & P Small-Cap 600 Value index : “ Since its inception in 2000 , it ’ s ahead of other indices , despite large-cap growth being in the ascendant .”
Tilting the odds Howie Li , head of index & ETFs at LGIM , agrees with him , which is why his group has tweaked some of its US small-cap products to tilt the odds back in its favour . “ We ’ ve taken design decisions to ensure companies are analysed for certain qualities or characteristics before they are included in the portfolio ,” he explains . “ For example , in a US small-cap ETF , we have incorporated a quality
Issue 87 - September 2022 / 35 /