The main article explores the case for small cap stocks in the US. This sector has underperformed large cap stocks in recent years, in part because of their concentration in less ‘fashionable’ parts of the market – financials, industrials and real estate rather than technology. In addition, more smaller companies are now privately owned rather than publicly quoted, and they have been more vulnerable to higher short-term interest rates, reflecting limited access to fixed-rate funding in capital markets. However, a very significant valuation discount has now opened up relative to large cap stocks, and it appears that the peak in the rate cycle has been reached. Saranac has had very limited exposure to small cap stocks in recent years, but we acknowledge that the arguments are strengthening for some exposure to be taken.
Read the full Investment Roadmap here.
