Research report

Small talk: The case for SMIDs

We dig into the historical outperformance of small and mid-cap stocks and the attributes that make them uniquely well-positioned for today’s investing challenges.

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May 21, 2021 | 16 minute read

Small and mid-cap equities (SMIDs) have been an attractive source of returns over the past few decades, though they remain challenging for many investors to analyze and access effectively. In this report, we scrutinize the historical performance of SMIDs across the world and attempt to uncover drivers behind their outperformance. Our analysis shows that there has historically been a return premium available in smaller-cap stocks, and the fragmented nature of the market may provide more opportunity for skilled managers to drive alpha.

Key takeaways

  • Despite strong returns over the past decade-plus, certain factors may make investing in large-cap equities more challenging looking forward.
  • Global small and mid-cap equities have historically outperformed large caps.
  • Additionally, SMIDs offer more opportunity for talented active managers to add value.

Global SMIDs vs. large caps
Cumulative total return

Source: MSCI, Bloomberg Finance, L.P., as of April 30, 2021.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Andrew Korz, CFA

Executive Director, Investment Research

Robert Hoffman, CFA

Managing Director, Credit Wealth Solutions

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