EXECUTIVE SUMMARY
• Mid- and small-cap U.S. equities represent a significant piece of the global market, but they are overlooked by many international investors, particularly in Europe.
• Historically, the S&P MidCap 400® and S&P SmallCap 600® have outperformed many global equity markets. However, the performance of many active funds investing in mid- and small-cap U.S. equities has been disappointing.
• With index-linked vehicles such as exchange-traded funds (ETFs) arising in recent years to offer low-cost, passive exposures to mid and small caps, global investors may find it timely to consider a passive allocation.
• We examine the benefits of exploring the U.S. equities market beyond large caps from a European investor’s perspective and with a focus on S&P Dow Jones Indices’ S&P MidCap 400 and S&P SmallCap 600.
INTRODUCTION
Investors the world over have made allocations to U.S. stocks, which include some of the world’s largest companies. Ex-U.S. investors appear to have explored little beyond the so-called “blue chips,” however.
As shown later, European fund investors, in particular, have minimal exposure to small or mid-sized U.S. equities. This lack of interest is puzzling, not least as they represent significant market segments in absolute terms; the S&P MidCap 400 alone has a market capitalization similar to the entire French stock market, while, in combination, the S&P MidCap 400 and S&P SmallCap 600 are roughly the same size as the UK’s stock market.
