Major stock markets like the US have become increasingly dominated by mega-cap giants over recent years.
Meanwhile small caps have been overlooked.
Smaller companies are often under-researched by analysts in favour of the big household names which everyone is familiar with.
This creates lots of opportunities to uncover hidden gems, and it’s an area of the market where active managers can demonstrate their stock-picking edge.
Smaller companies can be among the most exciting businesses around. Some are pioneers of emerging industries and are nimble enough to be able to adapt quickly to new opportunities.
They’re often among the most innovative and offer lots of growth potential, as well as generating larger proportions of their revenues domestically. But they're also higher risk than their larger counterparts because they can be more volatile and sometimes harder to trade. Here are three funds we think have the potential to perform well over the long term.
They’re run by seasoned fund managers with decades of experience of investing through all types of market conditions.
This isn’t personal advice or a recommendation to invest. Remember all investments and any income they produce can fall as well as rise in value, so you could get back less than you invested. If you’re not sure an investment is right for you, ask for financial advice.
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, use the links to their factsheets and key investor information.
Artemis US Smaller Companies
This fund aims to deliver long-term growth by investing in smaller companies based in the US, with the potential to grow over the long term.
The fund has been managed by Cormac Weldon since its launch in 2014. Olivia Micklem joined Weldon on the fund as a co-manager in 2022, though they’ve worked together for many years. We view this management team as both highly capable and experienced.
We like the way the managers consider how the US economy is performing to actively find sectors and companies that are benefiting from trends, as well as areas that are finding things tough.
The fund usually consists of 40-60 companies. Holding a smaller number of investments can increase risk, as each has a larger impact on performance.
Investors should note that, of the funds under HL’s research coverage, this is one of the most carbon intense. That means the companies within the fund could face increased scrutiny from investors and regulators. They could also face higher costs that come with carbon emissions management, potentially impacting the fund’s performance.
Annual percentage growth
Aug 20 – Aug 21 | Aug 21 – Aug 22 | Aug 22 – Aug 23 | Aug 23 – Aug 24 | Aug 24 – Aug 25 | |
|---|---|---|---|---|---|
Artemis US Smaller Companies | 35.93% | -12.46% | -3.66% | 17.95% | 9.61% |
Russell 2000 | 43.09% | -2.88% | -3.90% | 14.23% | 5.22% |
Schroder Asian Discovery
The fund aims to grow an investment over the long term by investing in high-quality smaller companies across Asia (excluding Japan).
The fund is managed by Alex Deane and the vastly experienced Robin Parbrook, who has spent over two decades working at Schroders.
The managers focus on the merits of individual companies and spend time understanding the quality, performance drivers and valuation of each.
When it comes to ‘quality’, companies should have a strong business model that can efficiently generate revenue and defend against competition. They should be financially robust and run by an experienced and aligned management team.
Schroders has plenty of resource to help sift through the market, with a large analyst team providing research ideas to the managers.
The managers invest in emerging markets and use derivatives which adds risk.
Annual percentage growth
Aug 20 – Aug 21 | Aug 21 – Aug 22 | Aug 22 – Aug 23 | Aug 23 – Aug 24 | Aug 24 – Aug 25 | |
|---|---|---|---|---|---|
Schroder Asian Discovery | 34.93% | -6.60% | -1.56% | 13.51% | 4.02% |
MSCI AC Asia ex Japan Small Cap | 37.83% | -0.87% | 1.76% | 13.54% | 8.24% |
Barings Europe Select
The fund is managed by lead manager Nick Williams, who has over three decades of investment experience, with the support of co-managers Rosie Simmonds and William Cuss.
The fund invests in small and medium-sized European companies with a GARP (Growth at a Reasonable Price) investment style. This means the managers invest in companies they believe are in good financial shape, have low levels of debt, and are run by quality management. In their view, these characteristics mean these are the type of companies capable of growing their earnings steadily.
Importantly, they then look for those where the shares can be bought at a lower price than the earnings potential suggests they should be trading at.
Annual percentage growth
Aug 20 – Aug 21 | Aug 21 – Aug 22 | Aug 22 – Aug 23 | Aug 23 – Aug 24 | Aug 24 – Aug 25 | |
|---|---|---|---|---|---|
Barings Europe Select | 28.77% | -24.48% | 5.87% | 8.37% | 6.67% |
IA European Smaller Companies | 39.97% | -25.37% | 4.79% | 11.89% | 11.82% |