Excess Returns Available In Small Cap


    There are excess returns to be captured from investing in small cap, says Brian J. Walsh, portfolio manager and vice-president at Dimensional Fund Advisors. Speaking on ‘Why Small Cap?’ at its annual investment luncheon, he said only about 1½ per cent of assets invested by Canadian plan sponsors are in small cap. However, there is a small cap premium which is persistent over long time periods and pervasive across all asset classes. There are challenges to investing in small cap, he said. There may be insufficient and unreliable information available for fundamental analysis. As well, it is important to have a strategy because investors are not only competing against the market for securities, but also for information. And being agnostic is the most efficient way to build a portfolio. While they have better returns, it is because they are small. Over the long term, they all have about the same return regardless of sector, he said.