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Opportunity: Value investing
The beauty of small and mid caps
Bigger is not always better: some of the best opportunities can be found in mid-cap and small-cap stocks. Our value investing strategies offer the opportunity to tap into this vibrant and diverse corner of the equity market.
Why mid caps and small caps?
Most of the growth in a developed economy is driven from the bottom up, led by smaller companies at the cutting edge of new trends and products. Don’t forget that Microsoft and Apple were once start-ups.
Using Russell’s definitions, mid-cap companies start at USD 7 billion in market value and go up to USD 52 billion. These companies are well established, with strong track records, so they typically do not face bankruptcy risk, and can offer considerable growth opportunities.
Steven Pollack, CFA
Portfolio Manager, Boston Partners
“
Discover great value in the smaller, unsung heroes of the stock market
Why now?
Mid caps and small caps tend to be more highly leveraged, with higher relative debt levels than large caps. This means they benefit more from an environment in which interest rates are cut, lowering interest payments and boosting profits. As rates are likely to have peaked on both sides of the Atlantic, this is the environment we are witnessing today.
The domestic focus of President Trump is also expected to benefit mid caps, where over 80% of revenues are generated domestically, thus avoiding any future tariffs. As Trump’s policies also point to a higher-for-longer inflationary and rates environment, the value style would also benefit.
Taken together, mid caps and small caps have generally outperformed other stocks once central banks begin their easing cycle, and emerged better from downturns, as the charts below show.
Good things come in small packages
Small caps historically lead the way after the first rate cut
The chart shows how small-cap and mid-cap stocks have historically done better than large caps after the first rate cut. Source: Federal Reserve Board, Haver Analytics, Center for Research in Security Prices, The University of Chicago Booth School of Business, January 2024.
The degree of small cap outperformance 12 months after recessions end has been significant
The chart shows that should a recession occur from 2025 onward, the degree of outperformance by small caps in the following 12 months has been significant, since they are more nimble in tapping into the recovery. Source: Kenneth R. French Data Library, November 2024.
Why Robeco and Boston Partners?
Robeco’s sister company Boston Partners has specialized in value investing for nearly 30 years, and has run mid-cap and small-cap investment strategies that have consistently outperformed their benchmarks in Europe (as UCITS strategies) and in the US (as mutual investment strategies) since inception.*
A time-tested approach
Boston Partners uses the tried and tested ‘three circles’ philosophy to find the best stocks across all capitalization sizes. A company must have good fundamentals, strong business momentum, and a valuation that allows for upside, to be eligible for inclusion in portfolios.
Research driven
A quantitative screen ranks the universe of names across valuation, fundamentals and momentum, using metrics that have been back tested to ensure true representation of the desired metric. Fundamental analysts then conduct bottom-up research on each company.
Sustainability integration
As a pioneer of sustainable investing since the 1990s, the integration of environmental, social and governance (ESG) factors, plus the use of engagement, is standard practice. The UCITs strategies are both classified as Article 8 under the SFDR.
Our flagship strategies
BP US Select Opportunities Equities D EUR
BP US Premium Equities D EUR
Additional small and mid cap strategies
More information can be viewed on the website of Boston Partners:
*US Select Opportunities Equities has outperformed its benchmark by 1.78% on an annualized basis since its inception in October 2011. US Premium Equities has outperformed by 1.89% annualized since inception in October 2005. These figures are for the D-USD share class in the Luxembourg-based UCITs funds, gross of fees, using data to 31 October 2024. Source: Robeco
Boston Partners Mid Cap Value has outperformed by 2.17% annualized since inception in May 1995. Boston Partners Small Cap Value has outperformed by 2.79% annualized since inception in July 1995. Boston Partners Small/Mid Cap Value has outperformed by 1.38% annualized since April 1999. These figures are for the standard USD share class in the US-based core funds, gross of fees, using data to 30 September 2024. Source: Boston Partners.
