When things look bleak, “it’s the small things that keep us going”, says Ian Cowie in The Times. Few investors have noticed that the FTSE Small Cap index is still up by more than 10% on the year, while the FTSE 100 is down. Over the past three years the tiddlers have left the blue-chips standing.
Small companies, unlike the giants, make most of their sales in the UK. With world growth lacklustre, China jitters centre stage and the domestic economy gathering pace in the past three years, the minnows have been swimming with the tide. It’s also easier to grow sales and profits rapidly from a low base than produce eye-catching increases when a company is already huge.
The downside, however, is that the tiddlers’ stocks tend to fall further in a downturn than blue-chips, where weakness in one area can be offset by resilience in another. They also tend to have fewer financial reserves to ride out tough times.