119: Janus Henderson's Richard Brown – Small Caps in a Concentrated World

In this episode of the [i3] Podcast, I'm speaking with Richard Brown, who is a Client Portfolio Manager with Janus Henderson Investors. And today we are going to talk about global small caps. We look at whether small caps are affected by the increasing concentration of the equity markets, particularly in the US, where technology stocks have dominated returns in recent years. We talk about catalysts for unlocking the current small cap discount versus large caps, including the rate environment and the current business cycle. And we take a look at a few case studies of where to invest and where not, involving fuzzy pandas, Italian industrial stocks and JB Hi Fi. This episode was sponsored by Janus Henderson Investors, and as such, the sponsor can make suggestions for topics, but the final control remains with the Investment Innovation Institute.

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Overview of Podcast with Richard Brown, Client Portfolio Manager, Janus Henderson Investors

02:00 The appeal of small caps and the case for egg producers

08:00 Does the concentration in equity markets and the increasing value of the Magnificent Seven require you to adjust valuation models for small caps?

09:30 The small cap discount to large caps has reached quite an extreme by historical standards

11:30 More clarity on the direction of rates would help small caps

13:30 There is an opinion that if rates stay higher for longer, then that would be bad for small caps. That is something we fundamentally disagree with.

14:00 The consensus view that small caps have underperformed as rates have gone up, that just hasn't been true versus history

18:00 About 30 per cent of small cap companies in the US has ha