Deutsche Bank: Is small cap better than Mag 7 in the long run?

Since 1955, the Deutsche Numis Small Cap indices have consistently outperformed in the UK, delivering a 14.1% annualized return, compared to 12.8% for the Deutsche Numis Mid Cap Index and 11% for the Deutsche Numis Large Cap Index. In contrast, Long Gilts have returned 6.7% per year, while inflation has averaged 4.7% annually.

The annual review by the DBIQ team underscores that the trend of small-cap outperformance is not limited to the UK but is evident globally. For instance, since 2000, in a sample of 13 global equity markets, only Taiwan has seen small caps underperform large caps. In the UK, small caps have outperformed by 2.8% per year over this period, while in the US, the outperformance is 2.1%. In Germany, the small-cap advantage is 1.7%, and India leads with a 4.1% annualized outperformance.

This raises the question: Is small really more beautiful in the long run? It’s something to consider, especially given the dramatic outperformance of the Mag-7 (the seven largest US tech stocks) over recent years.