Investing Outside the U.S. - Purgatory for Pessimists

Anyone overweight to non-U.S. allocations has suffered over the previous ten years. The current equity bull market has not been kind to non-U.S. allocations. At a recent conference I attended, the term ‘TINA: there is no alternative’ came up more than once in the context of allocating investor portfolios. It captures the collective sentiment that equities, despite a massive bull run and rising valuations, are one of few viable asset classes to park capital.

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A Returns-based Approach: Incorporating Microcap in Equity Allocations

We are often asked how much should be allocated to microcap equities. As long-term investors that view the opportunity set through the lens of factors, our answer is usually some version of "probably more than you currently do." There is little empirical research specific to the intricacies of microcaps, and common benchmarks cast a shadow on the alpha that is readily apparent in active manager returns and factor spreads. This post attempts to provide an alternative framework for approaching and sizing strategic allocations to microcaps.

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