Country Tilts in Small Cap Indexes
In recent years, many investors have included separate allocations in their portfolio for small-cap stocks in international and emerging market equities. Typical benchmarks for these allocations are MSCI’s EAFE Small Cap Index and Emerging Markets Small Cap Index. In conversations with clients and prospects, we find many investors expect that this allocation merely implies moving from large-cap stocks to small-cap stocks, with size being the primary driver of return differences between the standard and small-cap allocations. Indeed, many look to the difference between the standard and small-cap indexes as a metric of how large and persistent the small-cap premium has been for international and emerging market investors.