Small caps beat FTSE-All share post-pandemic

UK small-caps outperformed the FTSE All-Share in 2020, according to a review of the Numis Smaller Companies Index (NSCI).

The NSCI, which has 696 constituents comprising the bottom 10% of the UK main listed market by value, recovered from a March low-point to achieve an all-time high on 29 December and finished the year with a total return of 1.1%.

Over the 66-year history of the index, the annualised return on the NSCI is now 14.6%, which is 3.4% greater than the annualised return on the large-cap oriented FTSE All-Share.

The most widely used NSCI benchmark, the NSCI XIC, outperformed the FTSE All-Share by 5.5% in 2020.

However, mid-cap and large-cap companies did poorly: the Numis Mid Cap XIC fell by 9.9% and the Numis Large Cap by 10.3%.

Shares listed on the Alternative Investment Market outperformed the FTSE All-Share by 29.2%, with the strong performance broad-based across many industries.

The pandemic has led to severe dividend cuts, with small- and mid-cap companies worst hit – NSCI dividends experienced the largest one-year fall since the index began in 1955. However, an analysis of the stock price reaction to dividend announcements showed that companies are not being overly punished for the cuts.

Unsurprisingly, capital raising in 2020 was high: NSCI companies raised 95% more last year compared with 2019, the largest amount in recent years. However, this was well below the amount raised during the global financial crisis.

Scott Evans and Paul Marsh, the authors of the report, said: “2020 was a year of surprises, the most striking of which was the phoenix-like recovery of small-caps from the depths of the market last March.”

This demonstrated the resilience of the smaller companies sector, a repeated theme within the 66-year history of the Numis indices, they added.