With every passing day, Asset Allocator gets word of another DFM jumping aboard the small-cap bandwagon.

Fortunately for our readers, we’re on hand to catch all these tweaks as and when they happen, and some more DFMs have got in touch to tell us how their portfolios are shaping up for the second half of 2024. 

First, Tam Asset Management has reduced their exposure to the S&P 500 in favour of US and global small-caps, as a means of finding pockets of value in an increasingly top-heavy American market. 

Chief investment officer James Penny thinks positivity will broaden out beyond the US and into other less-loved regions, which is why they’ve also taken a larger emerging markets position. 

He told us this holds a particular emphasis on funds with a higher proportion of Chinese assets to capitalise on potential dollar weakness and attractive valuations in the region.

They've also boosted their UK exposure due to a ‘more stable’ government, attractive income yields, and more compelling valuations. Penny sees a rally in the offing for domestic equities that will be fuelled by falling rates. 

Over at Abrdn, some similar moves are taking place. 

They’re also taking a fistful of small-caps, though this time they’re going continental.

“European equities, particularly smaller companies, have been unloved by the market in recent years,” said Eric Louw, senior investment manager on the Abrdn MPS.

“We have been underweight European equities for some time. We reduced our underweight as the Eurozone seemed to have narrowly avoided a technical recession and some of the risks we had been worried about receded.”

Towards the end of June, he said they increased the proportion of small-cap within the European equity blend, as they see an ‘extreme’ P/E valuation difference between large and small. 

This was achieved by increasing exposure to Janus Henderson European Smaller Companies, and funded by reducing Invesco European Equity Income.

Small-caps are becoming a key valuation play for our DFMs this year, as many allocators have reinvested their proceeds further down the market cap ladder in the hope to catch the potential post rate cut recovery.

Said rates have still not been cut yet, though preparation is well underway. 

Additionally, they’ve added the Invesco Emerging Markets Local Currency Debt fund to their ranks, which they see as employing a distinctive developed market-centric approach.

“The team focuses on the outlook for global growth and the strength of the US dollar and consider these variables as more important than the outlook for emerging markets in isolation,” said Louw.

“The second key aspect is that they appreciate that sudden shifts in market sentiment to emerging markets can be detrimental to performance and so the team are very risk aware.”