Podcast: Are you ignoring these 13,000 Growth Opportunities?

Almost 13,000 stocks are classified as international small- and mid-cap (SMID), but “US investors see international SMID cap in all the wrong ways.”¹ That was a key insight from Senior Portfolio Manager David Nadel, who joined the Greater Possibilities Podcast to discuss the misperceptions investors have about these stocks and where his team sees opportunities in this often-overlooked space.

Among his insights:

• US investors don’t tend to see international SMID as a distinct asset class. US investors have less than 1% allocated to international SMID caps, versus around 14% for US SMID.² For many, that’s because they see international SMID as high risk. But compared to international large caps, international SMID has produced attractive risk-adjusted returns.³
• In the US, it’s rare for a SMID cap company to be a global market-share leader in its industry. But David says that’s a more common occurrence internationally: “You can be a $4 billion company in the US and sell to a single state in the country, like California, or Massachusetts. On the international stage, it’s a much tougher and more demanding standard. So if you’re coming from a small country, you don’t have a large home market. You have to figure out how the whole world works. You have to adopt basically global standards. And so these are really battle-tested businesses.”
• David’s bottom-up process looks for attractive stocks, not popular themes. But when themes do emerge, he looks for companies that are close to the action. For example, he cited IT consulting companies as “an agnostic play” on the artificial intelligence theme.

Listen to the full conversation:

Listen on Apple Podcasts

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Listen on Invesco.com

Footnotes

• According to Bloomberg, there were about 12,800 non-US small and mid-cap companies with market caps from $300 million to $10 billion, as of June 30, 2023.
• Source: Morningstar as of June 30, 2023. 
• Source: Morningstar data from July 1, 2007, through July 31, 2023. Over monthly rolling 10-year periods: International SMID had an average annual return of 5.89%, compared to 4.47% for international large caps; an average Sharpe ratio of 0.40, compared to 0.33 for international large caps; and an average Sortino ratio of 0.60, compared to 0.49 for international large caps. International small and mid caps represented by the MSCI All Country World ex USA SMID Index, which captures mid and small cap representation across developed and emerging markets, minus the US. International large caps represented by the MSCI All Country World ex USA Large Index, which captures large cap representation across developed and emerging markets, minus the US. The Sharpe ratio is a measure of risk-adjusted performance calculated by dividing the amount of performance a portfolio earned above the risk-free rate of return by the standard deviation of returns. The Sortino ratio differs from the Sharpe ratio in that it only considers the standard deviation of the downside risk, rather than upside and downside risk.

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Originally Posted September 20, 2023

Podcast: Are you ignoring these 13,000 growth opportunities? by Invesco US

Important Information

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Investors should consult a financial professional before making any investment decisions. This does not constitute a recommendation of any investment strategy or product for a particular investor.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.

Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.

Standard deviation measures a portfolio’s or index’s range of total returns in comparison to the mean.

The opinions referenced above are those of the author as of Sept. 13, 2023. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.