AXA’s survey highlights fund buyers concerns over small caps

A survey focusing on small caps investing led by AXA Investment Managers in January 2016 has revealed concerns of fund buyers over investing the asset class.

Some 150 fund buyers have been interviewed across the UK, Germany, Italy, France, Switzerland, US, Spain, Belgium, Hong Kong, Singapore and Netherlands.

AXA IM’s survey points out most of them allocate 6 to 10% of their portfolio to small caps.

Some 46% of respondents named volatility as the biggest obstacle to investing in small caps while nearly 40% expressed concerns about finding the right asset manager and 17% about finding the right investment product.

Matthew Lovatt, director of business development at AXA IM, commented: “We believe that current market volatility can create opportunity if you know where to look. Investors often overlook the potentially attractive qualities that smaller companies can add to a portfolio, perceiving them as more volatile and more risky than other asset classes.

“However, this means investors may miss out on small caps’ potential to boost performance, diversify portfolios and provide exposure to the fastest-growing parts of the economy.”

Among other findings, the research highlights that only one in three investors have plans to allocate to small caps in 2016, including around 30% of those not yet invested in the asset class.

Fund buyers interviewed said reallocation from cash, fixed income and emerging markets would eventually go into small caps.

Those currently holding small caps in their core asset allocation exposed reasons to keep a small caps’ bucket.

Small caps driving performance came as main explanation (81%). Some 78% of fund buyers holding small caps answered it brings portfolio diversification while 62% assessed it forms an opportunity to invest in growth companies and 40% of them believed it provides risk diversification.

According to Lovatt, “investors should consider allocating to small caps in a strategic way. Shorter-term headwinds such as slowing economic growth and volatile markets shouldn’t obscure the longer-term investment case for equities and for smaller companies in particular.

“Since small caps are inherently more inefficiently priced and require specialist knowledge, we believe that investors can benefit from an active approach which looks to select the most compelling businesses and to exploit the potential small cap M&A premium,” he added.

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