Stock Rally

Big Gains for Small Shares

  • Why it matters

    Why it matters

    Analysts predict stronger growth for shares in small and mid-cap companies than in blue-chips this year, in a sign of smaller regional firms withstanding global economic uncertainty and providing investors with greater returns.

  • Facts

    Facts

    • Germany’s MDAX index has grown by an average of 11.3 percent per year since 1987, compared to only 8.8 percent for the DAX index of the 30 biggest companies on the Frankfurt stock exchange.
    • Some experts believe second-line stocks are less vulnerable to the impact of political change, while smaller companies also tend to achieve higher growth than multinationals that have to withstand every economic downturn.
    • The election of Donald Trump as U.S. president could adversely affect large multinationals with international supply chains and provide a boost to smaller companies with a more regional focus.
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    Audio

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Covestro
Workers at Covestro, a Bayer spin-off and mid-cap company that performed particularly well in 2016. Source: DPA

Many investors are pouring their money into shares of big name corporations these days, but that ignores a simple fact: More money can be made from investing in small and mid-sized companies, experts say.

Germany is a good example of the wider trend. The country’s mid-cap MDAX index, listing companies such as engine maker MTU and machinery manufacturer Krones, has outstripped the blue-chip DAX for some time, according to analysts at DZ Bank. The mid-cap index has gained 11.3 percent per year on average since December 30, 1987, the base date they used for the indices, compared with average annual growth of just 8.8 percent for the DAX.

That’s unlikely to change in 2017: The election of Donald Trump in the United States could even prove an additional stimulus package for smaller firms able to dodge the global economic upheaval he might bring with him.

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