A Quantitative Approach to International and Emerging Markets Small Caps

International and Emerging Markets Small Cap

Did you know that a typical international small cap stock has less than a third of the number of sell-side analysts covering it than a large cap one? In this video, Director of Quantitative International Strategies Dr. Scott Decatur discusses how large and pervasive inefficiencies in this space can present significant alpha opportunity for active managers.

1. What inefficiency exists in the small cap space?
In the international small cap space, including both developed and emerging markets, there are thousands of companies around the globe with dynamic businesses in which to invest. Yet, due to their small size, these companies are generally less researched by both the sell-side and by investors themselves.

For instance, a typical international small cap stock has less than a third the number of sell-side analysts covering it than a large cap in these markets. This lack of scrutiny contributes to the large and pervasive inefficiencies in the space which provide a significant alpha opportunity for active managers such as ourselves.

2. How does your investment approach capitalize on this inefficiency?
Our approach in the international and emerging small cap spaces is to invest in companies that are both stronger and healthier than their peers and also trading at significant discounts to those same peers. In doing so, we identify opportunities along the spectrum of the trade-off between a company’s strength and its valuation — whether they are very cheap stocks of normal strength, strong companies that are reasonably priced, or anything in between. This allows us to capitalize on the best opportunities presented in the marketplace at any given point in time. Through disciplined risk controls, we seek to minimize stock specific risk and risks due to fluctuations between countries and/or sectors, with the goal of delivering strong risk-adjusted returns over time for our clients.

The opinions expressed in this video are solely the opinions of Segall Bryant & Hamill or an unaffiliated third party. You should not treat any opinion in this video as specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinions. The opinions expressed in this video are based upon information considered reliable, but completeness or accuracy is not warranted, and it should not be relied upon as such. Market conditions are subject to change at any time, and no forecast can be guaranteed. Any and all information perceived from this video does not constitute financial, legal, tax, or other professional advice and is not intended as a substitute for consultation with a qualified professional. The opinions and statements are subject to change without notice and Segall Bryant & Hamill is not obligated to update or correct any information in this video. For illustrative purposes only.

Scott E. Decatur, Ph.D.

Director of Quantitative International Strategies

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