There has been a lot of academic literature that shows small caps outperforming large caps over time. But the theory is little comfort for investors in the here and now. Over the past five years, large caps have outperformed by a comfortable 1.1% a year, 7.8% against 6.7%. Fledgling shares have a lot more runway than mature shares with large market shares. But there are stumbling blocks. One is that the JSE puts most of its effort into the top 40 shares and institutional clients — the thriving private client culture which supports small caps in many other markets is not entrenched. More recently, quality small caps have looked for other ways to raise capital, such as private equity, or they simply rely on debt, realising that equity is the most expensive form of finance in the long run. The tide could turn with the new stock exchanges such ZAR X, which will focus more on small caps. On the demand side there has been limited appetite for building block funds, which has affected the i...