Talk of the size premium has skewed negative recently over its performance in the US, where small cap stock indices have underperformed their large cap index counterparts over the past two decades. But as is often the case, taking a global point of view improves the picture.
Small caps have outperformed large caps handily in developed non-US markets and emerging markets. As Meat Loaf once sang, “Two out of three ain’t bad.”
The success of the size premium in international markets is a reminder of the value of global diversification. Premiums don’t always move in lockstep across markets, so diversifying globally may increase the reliability of capturing them.
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