The conflict between Russia and Ukraine has brought great uncertainty to investors and is likely to last for some time.

Against this backdrop, Bob Kaynor, head of US small and medium-sized equities at global asset manager Schroders, and Rupert Rucker, director of US small and medium-sized equities, believe that investors may want to look for an opportunity that can avoid the impact of this uncertainty to some extent and capture potential upside opportunities when solutions trigger a recovery in global risk appetite.

At the same time, even if the Fed continues to raise interest rates, interest rates are likely to remain historically low. For investors looking for higher returns, it believes that listed stocks remain the most attractive liquid asset class.

With the US economy still strong, Mr Schroeder believes that companies focused on the US will not be affected by the conflict between Russia and Ukraine, which are still likely to generate strong returns for investors. Among them, US small-cap stocks, which continue to focus on the US domestic market, have lower valuations, which provides further protection for investors.

Stock Index and Price trend since the conflict between Russia and Ukraine

Since the conflict between Russia and Ukraine, European markets have lagged behind, followed by emerging markets and Japan. The US stock market maintained a good momentum, among which the US small-cap stocks represented by the Russell 2000 index outperformed the globally affected S & P 500 index and NASDAQ index.

Why are small-cap stocks better than large-cap stocks?

1. Composition of the index

With the rising weight of well-known technology equity, the composition of the S & P 500 index has changed greatly in just a few years. This has changed the character of the benchmark index: from diversified economic exposures to concentrated long-term growth factors with higher overseas risks.

At the same time, the US small-cap stocks represented by the Russell 2000 index continue to maintain good diversification, and the business is obviously biased towards the United States.

two。 Domestic exposure

The vast majority of revenue exposure for small-cap stocks is domestic, which could provide a huge buffer against the overseas factors that follow.

3. Valuation

Compared with US large-cap stocks, US small-cap stocks are currently trading at a discount to earnings.

4. Profit prospect

The market expects earnings per share of small-cap stocks to grow faster than large-cap stocks in the coming year.

look into the future

No one knows how long the conflict between Russia and Ukraine will last, but investors can try to minimize its impact on their portfolios while increasing their exposure to long-term structural macro-positives.

The income of small-cap stocks in the US tends to come from the US itself, thus partly avoiding the impact of global geopolitical upheaval. Second, the small-cap sector also includes a wide variety of companies, allowing them to benefit from strong US economic growth. Finally, lower valuations and faster earnings growth provide a better buying point for investors than large-cap US stocks.

To sum up, Schroeder believes that the U. S. small-cap stock market will provide investors with opportunities for capital growth.