As equity returns become more consistent with past returns, investment approaches that simply reflect market averages start to lose some of their attractiveness. Consequently, money managers are looking to augment their overall portfolio performance with alternative investments to achieve incremental advantages in returns. An area that is receiving renewed interest is small company stocks. Research has indicated that these stocks move in about a 12-year cycle. For the first 8 years, small company stocks tend to outperform the averages, and, over the next 4 years, they underperform. If the cycle is moving in favor of small companies, then today's over the counter market presents an opportunity for pension fund managers. The percentage of pension fund assets allocated to this sector should return to the higher 1/3 of its historic range, or about 15%.
Full text: Pension World, Apr 1989
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