Small and Small-Mid (“SMID”) Cap Equities and the Case for Core: Mitigating the Perils of Concentration Risk and Overdiversification

As institutional investors continue to search for solutions to help meet their risk and return objectives, small and smid cap equity strategies remain compelling. However, once an investment program decides to invest in one of these asset classes, allocation decisions can significantly impact a portfolio’s risk profile and returns.

The small and smid cap universes are very broad and are used for both active and passive strategies that range from deep value to aggressive growth (and everything in between). Traditionally, the small and smid cap universes are each segmented into three style categories – growth, core, and value – in addition to the active/passive dichotomy. If the allocation decision among these styles is not made properly, an investment program may be exposed to unintended risks.

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