Big beats small: the past few years can be quickly summarized from an investor’s point of view. On average, shares with a high market capitalization were more in demand than small caps. However, if you take a look at the individual sectors with Pascal Kielkopf, you might be surprised at how often the small stocks outperformed the large ones.

The capital market analyst from HQ Trust examined the returns of the 11 sectoral MSCI ACWI small and large cap indices. Small caps are often less diversified in their business activities and are more dependent on the success of a few products or services, but when they are successful they also grow much faster. As a result, they are also more exposed to economic fluctuations.

In order to compensate them for the risk they take on, investors therefore expect a higher return from them. Small caps have clearly outperformed over the last 100 years. And what about the past few years?

– “Over the past 10 years, small-cap stocks have not outperformed the broad global equity market.”

– “However, this cannot be explained by the fact that small caps have performed poorly: since June 2010, they have achieved a gain of 188% or 7.8% per year.”

– “However, large caps were able to gain even more, mainly due to the enormous growth of big tech stocks. They achieved growth of 218 % or 8.6 % p.a.”

However, if you look one level deeper, industry-specific trends play the decisive role – and the picture of small versus large sometimes looks very different:

– “Although large stocks were ahead overall, small caps outperformed in 6 out of 11 industries since 2010.”

– “Utilities stood out in particular: In a wave of consolidation, many smaller utilities were taken over in the last decade, from which their shares benefited greatly.”

– “But small stocks also performed better in the materials, industrials, consumer staples, communications and consumer discretionary sectors.”

– “Small energy stocks, on the other hand, lagged the furthest behind: small companies suffered significantly more from the long period of low energy prices. Since these have risen again since 2020, small companies have also been able to catch up.”

Written by Pascal Kielkopf, Capital Market Analyst at HQ Trust