Reasons for International Investing
We believe there are a number of powerful reasons why investors should consider an allocation to international small cap stocks. One reason is that the breadth and depth of this asset class provides considerable opportunity for active managers.
From a size standpoint, we believe the non-U.S. small cap equity market is large enough to warrant interest by U.S. investors. The table below illustrates how global small/mid cap investment opportunities represent 59.1% of the investable universe of companies, compared to 11.8% for U.S. and non-U.S. large caps. And while international small and mid-sized companies constitute 32.4% of that investable universe, these companies provide more than 83% of the equity investment opportunities in developed international markets (i.e. 2,975 = 83.8% of (2,975+575)).
As of 12/31/17. Source: FACTSET
Beyond the breadth of the opportunity justifying its consideration for inclusion in investors’ portfolios, the vast number of companies highlights the potential advantages of active management over indexing. With so many companies to choose from, and dispersion existing between the best and worst performers in this area, stock selection can have a significant impact on returns for active managers able to capture the best opportunities and avoid the worst. With only approximately 2% of the market capitalization of international developed mid and small cap stocks being managed by dedicated international small cap managers1, there is considerable opportunity for those active managers to differentiate themselves. And the opportunity has been increasing, with 88% of the roughly 27,000 IPOs that have occurred globally since 2000 taking place outside of the U.S.2
We encourage you to explore three other meaningful reasons to invest in this asset class in our research paper 4 Reasons to Invest in International Small Cap.
1 Source: LMCG/eVestment Alliance as of 12/31/2017
2 Bloomberg as of 12/31/2017
IMPORTANT RISKS AND INVESTMENT CONSIDERATIONS
Equity Risk. The Fund’s equity holdings, including common stocks, may decline in value. The value of a security may decline for a number of reasons, which are detailed in the prospectus.
Foreign & Emerging Markets Investing Risks. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.
Small Cap Risk. The Fund’s investments in small capitalization companies may be less liquid and their securities’ prices may fluctuate more than those of larger, more established companies.
There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential loss of principal.