Global Small Cap: Coping with the End of Growth

Key points: 

Global small caps have a well-deserved reputation for delivering superior earnings growth. After recent earnings falls, do they need to be re-evaluated? How should investors adapt to the changing environment?

• Analysts’ hope for strong earnings growth remains intact despite recent disappointment.
• We think that financial constraints mean that they are likely too optimistic. • We expect growth to resume, but at lower levels than seen historically. 
• It is tempting but misguided to pay higher valuations for high-growth companies. This approach risks over-paying for growth. 
• We believe that a value-oriented strategy will benefit, in relative terms, from an environment of generally disappointing growth.