Global Small Companies Outlook for 2026
20 November 2025
After a decade of small cap underperformance, global small companies are coming sharply back into focus with a number of supportive catalysts for the asset class. Here our expert global small caps partner, ClariVest Asset Management, share their views on some of the factors they are considering when looking for opportunities to invest.
This information has been prepared by ClariVest Asset Management LLC (ClariVest), the underlying investment manager for the ClariVest Global Small Companies Fund.
Catalysts for unlocking potential in global small companies
After a decade of small cap underperformance, global small companies are coming sharply back into focus with a number of supportive catalysts for the asset class, including:
- Easing global monetary policy as many central banks look to unwind a prolonged period of high interest rates;
- Deregulation which is gaining pace across many global markets, including in the US, with more supportive policy settings acting as a tailwind for the sector; and
- Recovery in M&A deal making activity which is seeing smaller companies make attractive acquisition candidates.
When you put all of these factors together, the case for investing in global small caps is particularly compelling today. It is worth also noting that during this particular stage of the economic cycle, smaller companies have historically performed better when compared to their larger cap peers.
Small caps are on sale
Global small companies are trading at close to historic levels relative to their large cap counterparts following a decade of small cap underperformance (see Chart 1). However much of the composition of large cap returns can be explained by multiple expansion. On the other hand, global small companies have had superior earnings growth over the 10-year period to 31 December 2024. As we look ahead, we are finding exciting opportunities to invest in small companies across a wide range of sectors and markets, in companies with robust earning growth outlooks, which we believe is a more sustainable driver of long-term returns.
Chart 1: Global Small Companies are on sale
Source: MSCI, August 2025
Non-US returns great upside
At the time of writing, the non-US small cap return is currently sitting at ~29% year-to-date.
There are a range of supportive macroeconomic conditions that are acting as tailwinds for non-US returns.
For example, the budget handed down in Germany earlier this year was much higher than expected by markets and while the spending isn’t expected to start until 2026, some of the region’s stocks have already been boosted in anticipation. We see further potential upside from here as those budgetary flows start to get going.
The U.S. market is motoring along on AI-related capex, expected efficiency boosts from generative AI, anticipated interest rate cuts, and rising M&A activity. There are concerns under the hood on valuations, inflationary pressures, and policy uncertainty. A lot of investors are still anchoring to the view that AI opportunities only exist in the US; however, there are opportunities that are leveraged to this theme in other markets, often at more attractive valuations, in countries such as Canada and Japan.
Uncertainty in global markets created by shifting government policies and challenges to global growth has seen the gold price go up considerably, and we are seeing opportunities across markets such as Australia and Canada that are actively contributing to delivery of excess returns in our portfolio.
Globally some banks are doing well and increasing shareholder returns in select markets such as Italy, where industry consolidation has been to the benefit of some names.
Underappreciated growth ideas often appear in parts of the markets that others overlook, or paint with a broad negative brush. We also continue to find opportunities in consumer discretionary despite perceptions of a weaker consumer.
Merger and acquisition activity
There has been a recovery in mergers and acquisitions emerging, which often involves small companies, and a trend of deregulation in several markets around the world, including the US is supportive.
Today’s improving dealmaking environment has created opportunities for some of our holdings, with at least three portfolio names being takeover targets this year. We expect this activity to continue into the year ahead.
A strong stock market tends to fuel dealmaking. When market returns are solid, companies are more willing to pursue strategic acquisitions. Of course, another factor is valuation. As highlighted earlier, small-cap stocks remain deeply discounted relative to their large and mega-cap peers.
Our process at ClariVest is designed so that we can systematically find those stocks where we believe that strong recent growth will persist into the future, and that is the underappreciated growth opportunity we are looking for. When you invest in companies like this, you end up with portfolio characteristics where a key outcome is that the portfolio as a whole has above market growth.
At the same time, you are getting that at a discount relative to the benchmark, due to that anchoring to the longer term, which is attractive to other investors.
Chart 2: Sector weight comparison
Global Small Caps marching to a different beat
Source: MSCI, August 2025
Summary
Small caps around the world outperformed large caps for the quarter ended September 2025, the first quarter since the third quarter of 2024.
History has shown that following periods of heightened volatility and market concentration, small caps generally outperform. Given the current market climate, this trend looks set to continue into 2026, rewarding those who invest in opportunities yet to be fully appreciated by the market.
Want to learn more?
- Contact us on 1300 927 254 or visit Invest in Global Small Companies.
The information in this document is published by Warakirri Asset Management Limited ABN 33 057 529 370 (Warakirri) AFSL 246782 and issued by ClariVest Asset Management LLC (ClariVest) representing ClariVest’s views on a number of economic and market topics as at the date of this report. Any economic and market forecasts presented herein is for informational purposes as at the date of this report. There can be no assurance the forecast can be achieved. Furthermore, the information in this publication should only be used as general information and should not be taken as personal financial, economic, legal, accounting, or tax advice or recommendation as it does not take into account an individual’s objectives, personal financial situation or needs. You should form your own opinion on the information, and whether the information is suitable for your (or your clients) individual needs and aims as an investor. While the information in this publication has been prepared with all reasonable care, Warakirri and ClariVest do not accept any responsibility or liability for any errors, omissions or misstatements however caused.
