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International Small Cap

The Benefits of International Small Cap

  • Thus far, we have established the benefits that International Equity can have on a portfolio, but diversifying across the market cap spectrum plays an important role as well
  • Investors often embrace U.S. small cap stocks for their fast growth, attractive risk-adjusted returns, and relatively low correlations, while ignoring the broad span of small caps available outside of our borders

Diversifying International Holdings with Small Caps Would Have Boosted Returns with Only a Relatively Minor Impact on Volatility
Impact of Adding Small Caps to an International Portfolio: 20 years as of 6/30/2023

International Small Cap

Sector Weights and Differentials of International Large Cap vs. International Small Cap

  • International small caps can also help diversify exposure to sectors where large caps are not as prominent
  • As shown below, sector weighting differentials can be drastic between large caps and small caps; incorporating both can provide another layer of diversification

GICS Sector Weightings vs. Relative Weightings

International Small Cap

Source: MSCI, FactSet. As of June 30, 2023. Large Caps are represented by the MSCI AC World ex USA Index and Small Caps are represented by the MSCI AC World ex USA Small Cap Index. Sector Weightings are calculated using GICS sector classification standards.

Diversification does not guarantee a profit or protect against a loss in declining markets.

 

Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations.

 

Investments in small capitalization companies are subject to risks such as erratic earnings patterns, competitive conditions, limited earnings history and a reliance on one or a limited number of products.

 

Investments in frontier emerging markets and emerging markets are subject to risks such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.

 

Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies.

 

Alpha, often considered the active return on an investment, measures the performance of an investment against a market index used as a benchmark, since the benchmark is often considered to represent the market’s movement as a whole. The excess return of a fund relative to the return of a benchmark index is the fund’s alpha.

 

The Sharpe ratio is calculated using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio’s historical risk-adjusted performance.

 

Standard deviation is used as a measure of an investment’s volatility. It calculates the variability of returns by comparing a mutual fund’s return in each period with the average return across all periods. The standard deviation is not available for periods of less than three years.

 

Click here for index definitions. All investments are subject to risk including possible loss of principal.

 

Please visit msci.com for the most current list of countries represented by the MSCI indices.

 

Indices are unmanaged, are not available for investment and do not incur expenses.

 

All data referenced are from sources deemed to be reliable but cannot be guaranteed as to accuracy or completeness.

 

AMG Distributors, Inc., a member of FINRA/SIPC.