New analysis from Edinburgh-based investment giant Aberdeen shows that smaller companies globally have outperformed their large cap counterparts “across major asset classes” since “Liberation Day” on April 2, 2025.
Aberdeen said that in the UK, smaller companies have outperformed large caps by as much as 9.78% percentage points since Liberation Day, which could indicate a longer term trend.
“With President Trump continuing to announce tariffs to trade partners and US uncertainty set to remain, smaller companies’ appear to have been less impacted by recent macro headlines,” said Aberdeen, which oversees about £500 billion in assets.
“The data shows the biggest difference in returns, since the start of April, was generated by the MSCI UK Smaller Cap Index which delivered cumulative returns of 12.7% over the period versus the MSCI United Kingdom Index at 2.99%, a difference of 9.78% percentage points.
“In Europe, the MSCI Europe small cap outperformed MSCI Europe GR by 7 percentage points, up 9.88% versus 2.66% for large caps.
“In Asia, the MSCI Asia ex Japan Small Cap returned 18.05% versus 12.70% from the MSCI Asia ex Japan Index, and the MSCI Japan Small Cap returned 10.51% vs 7.27% from the MSCI Japan Index.
“Whilst not quite outperforming their large cap peers, it is nonetheless noteworthy, that the Russell 2000 and S&P500 have delivered matching returns over the same period ( at 10.76% and 10.91%, respectively).
“Looking further back, the MSCI Asia ex Japan Small Cap has consistently outperformed the MCSI Asia ex Japan Index by 7.03% percentage points over 5 years and 0.47% percentage points over 10 years.
“Going back 15 years the MSCI Europe Small Cap Index outperform MSCI Europe, 5.92% versus 1.81%, a difference of 4.1%percentage points. For the other markets analysed, this was not the case.
“Supportive interest rate policies and measures to boost domestic substitution have underpinned small cap growth, in contrast to disappointing top line expansion from large cap constituents.”
Kirsty Desson, Manager, Abrdn Global Smaller Companies Fund, said: “Many investors will be surprised by the recent strength in smaller company stocks. For some geographies, in particular European and Asia ex Japan Small Caps, this trend is, in fact, a continuation of a multi-year phenomenon.
“What differentiates the current moves and why we believe this outperformance in smaller companies relative to large caps still has room to go is simple: diversification, geographically and by asset class.
“Policy changes, and the knock-on effects to currencies and company earnings, are creating uncertainty in the US, at a time when US large cap is a widely owned asset class, and growth outside of the US is recovering.
“We point to ongoing corporate reform measures in Japan and a major spending initiative in Germany as two powerful drivers of growth. As a result, we expect geographic diversification to continue to play out.
“In addition to regional allocation shifts, asset class diversification could gather further steam. Small cap companies tend to be more domestically orientated than large caps names, and therefore less sensitive to tariff changes.
“This goes some way to explaining the benchmark return differentials since Liberation Day. Along with the benefit of interest rate cuts in some areas, forecast earnings growth for the ACWI small cap index is higher than for the large cap indices.
“Given these higher growth expectations, investors can no longer ignore the valuation gap between small and large cap indices. Small companies are trading at the widest discount to large caps in more than 20 years.
“All told, our view is that Smaller Companies offer a timely and compelling investment, with potential to continue on this trend.”