Small and medium enterprises are the hard core of the Italian economy. Everyone knows it, but when the numbers confirm it, the effect is different. According to an empirical study by the Sda school of the Bocconi University in Milan, the small caps, listed on the Milan stock exchange, have shown a nearly 600% outperformance of larger capitalization stocksboth in the short and medium-long term.
The analysis was conducted on a total of 560 companies listed on the Milan stock exchange from December 1988 to December 2009. The decile of small portfolio securities (i.e. the portion that includes 10% of companies with smaller capitalization) presented, on a year, a 14% excess return on the decile of big portfolio stocks, i.e. companies with the largest capitalization. And this value increases exponentially if longer time spans are considered: the gap is 3% over 66 years, 183% over 5 years and 581% over 10 years. So basically 10 years later, a euro invested in the portfolio of smaller capitalization securities yields almost 6 more than the same euro invested in the portfolio of higher capitalization securities.
In Italy there have still been few studies on the reasons behind this extraordinary performance of small caps. Similar research conducted in the United States has revealed that high yields are associated with higher risk (which most common risk-reward models do not capture), ai higher transaction costs, in the presence of alimited information andilliquidity of small-cap stocks.
Finally, the Bocconi study observes the similarities between the performance of stocks of small caps and that of funds private equity: the two asset classes, if you look at returns, are absolutely assimilable. In recent years, Pipes (Private Investment in Public Equity), funds that invest in small and medium-sized enterprises, have been spreading in the United States. This phenomenon could also start in Italy and thus give new impetus to what is the basis of the Italian economy and of Made in Italy.
