Executive summary
The size premium, defined as investing in smaller market cap companies relative to their larger counterparts, has been shown to harvest excess returns relative to market beta. The size premium is an extension of modern portfolio theory, supported by academics and empirical evidence.
A popular way for investors to gain exposure to the size premium is Australian small-caps, yet the asset class has consistently underperformed its large- and mid-cap counterparts, hamstrung by structural nuances.
Global small-caps, which is typically underrepresented in Australian investment portfolios has historically outperformed global large- and mid-caps as well as Australian small-caps over the long-term.
We show an alternative systematic way to invest in a diversified portfolio of global small-cap equities that has historically achieved excess returns over the long term, supported by research, offering defensive characteristics that Australian investors should consider in place of, or alongside, their Australian small-cap exposure.
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