🧭 Background & Context
The Small-Cap Value strategy invests in small, undervalued companies with the aim of benefiting from their long-term price recovery. Historically, this approach has generated excess returns compared to the overall market, attributed to higher risk premiums and inefficiencies in this segment. However, during periods of economic uncertainty or rising interest rates, the strategy often suffers, as small caps are more sensitive to economic cycles and financing costs. Currently, it is underperforming relative to Large-Cap Growth stocks, indicating persistent risk aversion among investors. Long-term, the strategy remains attractive but requires patience and consistent execution to benefit from mean-reversion effects.
📊 Market Environment & Drivers
**Analysis of key drivers:**
The primary driver is the persistent interest rate differential between the US and other economies, which continues to strengthen the dollar. At the same time, geopolitical risks act as a demand catalyst for safe havens like gold and the Swiss franc. On the commodity side, supply restrictions for oil and copper dominate price dynamics, while weak Chinese demand acts as a dampening factor. Technological disruptions, particularly in the AI sector, are driving structural shifts in equity markets.
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