A global study by New Horizon Aircraft reveals that fund managers are increasingly interested in small and micro-cap stocks. The report, based on a survey of fund managers from the U.S., Canada, Europe, the Middle East, and Asia, with a total of $82.4 billion in assets under management, concludes that 76% of respondents anticipate that institutional investors’ exposure to small and micro-cap stocks will increase in the next six to twelve months. Furthermore, one in three (34%) fund managers believes allocations could increase by 25% or more.
For retail investors, the trend will be similar: 83% of surveyed fund managers expect retail investors to increase their allocation in the next six to twelve months, with 52% indicating that the allocation could rise by more than 25%, and one in eight (12%) suggesting that exposure to small and micro-cap stocks could increase by more than 50%.
“One in three fund managers describes the current level of institutional investor exposure to this type of asset as underweight, with 21% of respondents describing the allocation to micro caps as slightly underweight and 11% describing it as extremely underweight. The current level of exposure is described as overweight by 4% and 23%, respectively. A similar outlook is seen with retail investors, with fund managers describing the allocation of this group to small and micro caps as underweight (32% and 27%, respectively) and as overweight (17% and 13%, respectively),” the report notes.
In the opinion of Brandon Robinson, CEO of Horizon Aircraft, this analysis shows that fund managers believe institutional and retail investors’ exposure to small and micro-cap stocks is lower than it should be. “However, with anticipated interest rate cuts and expected improvements in market conditions, fund managers foresee investors significantly increasing their allocation to small and micro-cap stocks. As the economy recovers, small and micro-cap companies may have greater growth potential than large-cap companies due to their smaller revenue bases and agility in seizing opportunities. This has historically made them more attractive to investors driven by the potential for high returns and accelerated earnings growth in the coming 12 months,” he explains.
