Chart of the Week: Eye Of The Tiger

Having stepped into the ring myself in my youth, I've learned that boxing, like investing, isn't just about power or brute force. It's about a calculated approach, timing and recognising opportunities.

This past weekend, boxing fans saw Iron Mike Tyson face off against social media star Jake Paul – a showdown that brought plenty of hype. But as any seasoned fan knows, the real action was in the bout between Katie Taylor and Amanda Serrano, who fought for the title of undisputed light-welterweight champion. The undercard fighters are often the ones to watch for technique, grit and endurance, in much the same way as lesser-known, small and mid-cap companies often bring additional value to portfolios.

In the markets, the current heavyweight focus may be on mega-cap tech stocks, which have delivered powerful performances. But we see the potential for small and mid-cap companies to ‘make a comeback’, so to speak, especially as they could benefit from potential upcoming tailwinds in the US, including tax cuts, interest rate reductions and improved earnings growth.

Small and mid-caps are cheaper when you look at valuations. And, as the graphic below shows, they sell more of their goods and services in the US, which means they’re likely to benefit more from Trump’s much-heralded focus on domestic growth. Overall, companies listed on the Russell 2000, an index of 2,000 US small-cap stocks, earn 76% of their revenues in the US, according to Visual Capitalist/Citi Global Wealth Investments data. The large-cap companies listed on the S&P 500 tend to sell more overseas and overall generate only 59% of their revenues in the US.

Small-caps are also more likely to have floating rate debt, and stand to benefit when the cost of this borrowing falls if, as expected, the Fed continues to cut interest rates.

Key takeaway: boxing teaches you to adopt a measured, strategic approach rather than getting lost in the hype. Investing requires the same discipline. Rather than always going for the heavyweight stocks, it can pay to also focus on the challengers down the market-cap scale who may be poised to land strong punches as conditions shift.

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.