Where is the value in small caps?

SPECIAL REPORT

Small cap stocks outperformed larger peers in 2012, as investors rushed back into risk assets, but after a solid run in 2012, where should investors look now?

Investors in the UK small-cap sector were rewarded last year, as the FTSE Small Cap index returned 27.8%, compared to 9.97% for the FTSE 100. But valuations are now considerably higher than a year ago, and fund managers have cautioned the sector is unlikely to replicate the same kind of success going forward. Marlborough Special Situations manager Giles Hargreave recently admitted it would be “unrealistic” to expect returns to be as high this year.  “Last year small caps had a great year, but it is unrealistic to expect these sorts of returns again in 2013, as a lot of recovery sto...