Small caps once more yield the best returns

In euro terms the Small Cap World index returned 29.4% and the EM Latin America index yielded 25.0%. The small-cap index performed significantly better than the more general World Index, which returned 4.7%.

The worst performing geographic areas were the Far East (up 3.71%) and North America (up 1.48%). Value-based stocks also tended to perform significantly better than growth stocks last year, with the world indices achieving returns of 7.59% and 1.77%, respectively.

Energy and utility stocks were the best sectors to be invested in last year, while healthcare and information technology stocks performed the worst, both yielding negative euro returns. Looking at the bond markets, the MSCI sovereign debt world index performed slightly worse (up 2.23%) than its equity index counterpart.

Richard Batty, global investment strategist at Standard Life Investments, says: “Small caps should continue to perform well in 2005. Many smaller companies are being bought out by venture capital firms and take-overs are on the up.”

Batty explains that continued uncertainty surrounding the value of the dollar and the American current account deficit make investment in America less attractive than in Europe. Comparing growth and value stocks, he says: “Strong cash returns and increased dividends were themes in 2004 that helped the performance of value stocks. We are approaching the middle phase of the economic cycle, and hence growth stocks may perform better in 2005 and there may be a small shift out of value to growth-based companies.”