The European quoted small company market is “inefficient” – less liquid and under-researched.  Most large institutions cannot invest directly because they are too big.  It is not profitable for analysts and brokers to research small companies.  This gives Montanaro the opportunity to add value by completing our own research and making investments in a market overlooked by many investors.  We have developed a universe of over 6,000 quoted European small companies from which we can find undervalued companies and pricing anomalies.

Inefficiencies within Europe are considerable.  Barriers of language and geography mean that many quoted small companies have few international institutional investors.  With the continuing enlargement of the EU, we see many investment opportunities as the new countries develop and drive growth across Europe.

Small companies typically operate in niche markets and have more dynamic and motivated management.  With greater flexibility, they offer better growth prospects and historically have produced higher returns than large companies – the so-called “SmallCap Effect”.

What is the SmallCap Effect?

Since 1955, UK quoted small companies have produced annual returns of 16%, outperforming large companies by 3.5% p.a..  Such outperformance makes a big difference: over this time, investors in UK quoted small companies have received returns almost five times greater than from large companies.