Small/Mid Cap International Investing

Historically, international investing has focused on Large Cap stocks. In the mid and late 1990s, a few initial research articles were published suggesting that small/mid cap international stocks diversified the risk of a well balanced portfolio and had the potential for generating superior returns. Over the last ten years, this research has been shown to be correct. Small/mid cap international stocks have generated returns far in excess of their large cap international brethren.

There are few mutual funds that invest in this segment of the international markets. There are few analysts that follow small and mid cap companies in Asia, Latin America and Europe. Many international exchanges inefficiently handle transactions involving smaller and more illiquid companies. (These issues are also an opportunity to make substantial returns because inefficiency always equals opportunity). It is also an expensive strategy to execute. The result is that few investors have small/mid cap international exposure.

Altamont Capital Management has been invested in Small and Mid Cap International stocks for years. Many of the submanagers and mutual funds we use to implement this strategy are not available to the retail investor but there are a handful of funds worth considering. Laudus, Forward and T. Rowe Price Discovery have international small/mid cap funds that are open and available to the retail investor.

Here is a paper by Laudus Funds that discusses further the merit of small/mid cap international investing.

http://www.laudusfunds.com/common/reportDownload.asp?doc=ISMCAPWhtPpr

The Financial Pragmatist
Libby Mihalka