Adding Global Small Caps: The New Investable Equity Opportunity Set?
categories: Indexes, Investing (Investment Management), Equities, Research Paper, Indexes
The globalization of economies and the integration of capital markets have changed the landscape for equity investing. Institutional investors are increasingly investing in equities in both developed and emerging markets, across large, mid and small cap stocks. With accessibility to foreign markets continuing to rise and trading costs falling, this "all cap" universe may now be the potential investable opportunity set for many long-term institutional investors. For most institutional investors, adopting a global "all cap" universe generally requires adding global small caps to their global large and mid equity allocations. This paper explores certain reasons why some institutional investors have moved to a global "all cap" approach and examines certain investability characteristics of international small cap equities.
Investability is one of the cornerstones of the MSCI Global Investable Market Indices Methodology. We focus on the flagship global MSCI index—the MSCI ACWI Investable Market Index (IMI)—which aims to represent a comprehensive and liquid global equity opportunity set, including large, mid and small cap stocks across 24 Developed Markets and 21 Emerging Markets countries.