Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Like many other parts of the market, small-cap stocks struggled when interest rates rose and had a difficult 2022, but the prospect of rate cuts has helped them to recover. If central banks, like the US Federal Reserve, ease monetary conditions as expected, then it could result in another profitable year.

One way to benefit would be to consider the Vanguard Global Small-Cap Index, which is a member of Fidelity’s Select 50 list of handpicked funds. It is a passively managed option that aims to provide long-term capital growth by tracking the performance of the MSCI World Small Cap benchmark.

What does the fund invest in? 

The index consists of small-sized company stocks in developed markets, with the fund containing an incredible 4,287 different holdings at the end of December. These had a median market value of £2.6bn and were trading on an average PE ratio of 13.5 times last year’s earnings.1

Despite being a global benchmark it is dominated by the US, which accounted for 59.4% of the assets at the end of November. This obviously adds an element of country risk to an otherwise diversified portfolio, but could result in higher returns if American small-cap stocks outperform.

How has it performed?

Last year’s gain of 9.27% made up for the loss of 8.55% the year before, yet the longer term record is still very healthy. Over the decade to the end of 2023, the Vanguard Global Small-Cap Index Fund generated a cumulative return of 146.36%, which was marginally behind the 150.4% achieved by its benchmark2.

How does it stack up on cost?

Vanguard has a strong index-tracking capability and this particular fund is competitively priced with ongoing charges of just 0.29%.

What is the outlook?

Small cap stocks tend to be more sensitive to interest rates than the large caps, so if rates are cut they could outperform. However, in the event of a recession that results in lower corporate earnings, they are unlikely to be as resilient as their bigger competitors.

Who is it suitable for?

Smaller companies are usually more volatile than their larger counterparts, so the fund will mainly be suitable for longer term investors who are comfortable with the higher level of risk. It may also suit investors looking for a cost-effective way to diversify a proportion of their portfolio into smaller companies.

For more information see Vanguard Global Small-Cap Index.

(%) As at 31 Dec 

2018-2019 

2019-2020 

2020-2021 

2021-2022 

2022-2023 

Vanguard Global Small-Cap Index 

21.0 

12.2 

16.7 

-8.6 

9.3 

Past performance is not a reliable indicator of future returns

Source: FE from 31.12.18 to 31.12.23 Basis: Bid to bid with income reinvested. Excludes initial charge.

Source:

1 Vanguard, 31 December 2023. 

2 Vanguard, basis of fund performance NAV to NAV, net of expenses, with gross income reinvested. 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The Vanguard Global Small-Cap Index Fund invests in overseas markets and so the value of investments could be affected by changes in currency exchange rates. The fund uses financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This fund invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. The Key Information Document (KID) for Fidelity and non-Fidelity funds is available in English and can be obtained from our website at www.fidelity.co.uk. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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