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UK small-caps beat FTSE All-Share over long term

22 Jan 2018


LBS research reveals Numis Alternative Markets Index provided returns of 27.4% in 2017



201801  Concept  Stock Market 

The Numis Smaller Companies Index (NSCI) finished 2017 on an all-time high, outperforming the FTSE All-Share Index by 5.7% over the year, analysis by London Business School experts has revealed.

The finding is outlined in the newly published Numis Smaller Companies Index Annual Review 2018. The report is the result of in-depth research by Paul Marsh and Elroy Dimson, Emeritus Professors of Finance at LBS, and LBS researcher Scott Evans.

It shows the NSCI, which covers the bottom tenth by value of the main UK equity market, gave a total return of 18.8% over 2017. By comparison, the FTSE All-Share Index provided a 13.1% return over the same period.

However, both indices were outshone by a newcomer, the Numis Alternative Markets Index.

Launched last year, the new index includes all 958 companies listed on qualifying UK alternative markets*. It was the stand-out performer of the Numis family of indices in 2017 with a return of 27.4%, according to the 2018 Annual Review.

Overall, UK small- and mid-cap companies performed strongly in 2017. Despite ongoing concerns regarding Brexit and downgrades to UK economic growth forecasts, all except one of the Numis indices ended the year at a record high.

Other performance highlights of 2017 covered by the report include:


  • the NSCI ex-investment companies index (XIC), which excludes investment trusts, produced total returns of 19.5% over the year and outperformed the FTSE All-Share by 6.4%;
  • the very small companies of the NSCI 1000 returned 19.2% over the year, and the mid-sized companies of the Numis Mid Cap index returned 19.6%;
  • since 1955, the NSCI has achieved a compound return of 15.2%, 3.4% p.a. above the FTSE All-Share; and,
  • a £1 investment in the NSCI made at its starting point in 1955 would be worth £7,209 by the end of 2017. This compares to £1,095 if invested in the FTSE All-Share over the same period.

Professor Paul Marsh and Scott Evans, who authored this year’s report, said: “Analysing the long-run history of the Numis Smaller Companies Index provides interesting insights into what drives small-cap returns.

“The work we undertook this year on quantifying the impact of different economic, monetary, market and political conditions proved to be very informative in explaining smaller companies returns over the past 63 years.”

Will Wallis, Head of Research at Numis, described the Numis Smaller Companies Index as: “the definitive benchmark for monitoring the performance of smaller and mid-sized companies in the United Kingdom.

“The 2018 Annual Review provides real insight into the history of the indices and the drivers behind the performance of smaller companies. It is an invaluable source of information for small-cap and large-cap investors alike,” he said.

In addition to its coverage of the newly introduced Numis Alternative Markets Index, this year’s Annual Review also examines trends in research coverage and the usefulness of brokers’ recommendations.

The authors find that, over the last 16 years, the average number of analysts covering NSCI companies has increased and pose the question of whether MiFID II might reverse this. After examining a large number of brokers’ recommendations over 16 years, they conclude that they are valuable for both small-caps and well-followed mid-caps, but less so for large-caps.

The 2018 Annual Review looks at 63 years of historical data to address the question of when small-caps have done well and performed poorly. They document the performance of the NSCI and the FTSE All-Share during bear markets, recoveries, recessions, upswings and downswings of the economic cycle, low and high market volatility, low and high inflation, interest rate hiking and easing cycles, Conservative and Labour governments, and low and high nominal and real interest rates.


*Only AIM currently qualifies. However, the index back-history goes back to 1980 and includes stocks traded on the now discontinued USM and Third Market.