Over the past 10 and even 30 years, SMID cap companies have quietly outpaced large caps in earnings growth. Yet, large cap indices have dominated headlines, driven not by superior growth, but by soaring PE ratios. In this note Hugh Grieves, Fund Manager of the Premier Miton US Opportunities Fund, takes a look at the overlooked power of SMID caps.
Summary
- SMID cap earnings growth has actually been higher than large cap over both the last ten years and the last 30 years.
- Large cap index outperformance over the last decade has been driven entirely by large cap PE ratios expanding dramatically whilst SMID cap PE ratios have contracted.
- Drivers for further large cap multiple expansion are now fading (reversing?) making additional expansion difficult from current levels, and mean reversion possible.
Historically the case for investing in US small- and medium sized companies has been underpinned by their superior earnings growth rates compared to larger companies, which in turn has driven their long-term index outperformance.
You can now read the full whitepaper at the link below
