Often Australian investors’ exposures to international equities are dominated by large- and mid-cap companies. This is because the benchmark index used by Australian managers is the MSCI World ex Australia Index, which aims to capture the performance of these large- and mid-cap companies. This benchmark captures approximately 85% of the free float-adjusted market capitalisation of each developed country in the index, so it includes the largest companies in each country, until this threshold is reached.
As a result investors are missing out on opportunities in the remaining 15% of the international equities market not included in the benchmark. These companies are considered small-cap companies.
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