A terrible year for small-caps

Small listed companies performed worse in 2008 than in any year since 1974, according to the Hoare Govett Smaller Companies (HGSC) report

The HGSC index, which measures the performance of the lowest tenth by value of the main UK equity market, gave a total return of -39.6 per cent last year, which is 9.6 percentage points below the FTSE All-Share.

AIM, the London Stock Exchange’s growth company market, fared worse, with the market losing 61.8 per cent of its value during the year. Since its inception in 1996, AIM’s annualised return has been -7.6 per cent.

‘AIM has had a truly dreadful performance, almost since the word go,’ says Paul Marsh, a professor at London Business School and co-author of the HGSC Index report. ‘A lot of companies have given up on the market altogether because they can see no opportunity to raise money using their shares.’

The report offers some consolation for small-cap investors. An investment of £1,000 in the HGSC Index in 1955 would now be worth £1.7 million, as compared to £400,000 if the investment had been in the FTSE All-Share.

In addition, UK small-cap investors fared better than most of their global counterparts in 2008. The UK is ranked fourth out of a list of 24 countries for the share price performance of its small quoted companies, behind South Africa, the US and Japan, but ahead of European rivals France and Germany, as well as the BRIC countries.