STEPHEN CRANSTON: Why small caps are beautiful
It is important to remain invested in small caps to capture the often lumpy upside in this asset class
I was looking at the small-cap unit trusts recently, and tried to work out what had happened to the so-called size premium. This was established by Nobel laureates Eugene Fama and Kenneth French: in the long term you will get better returns from small caps than from large caps.
It makes sense on paper: small caps are run by entrepreneurs who are eager to increase market share, while large caps are often dinosaurs in the decadent phase of their lives. If you are a large cap such as Standard Bank or Shoprite, it is hard to grow much more than the underlying economy, while small caps have plenty of opportunity to keep growing.