Markets & Economy

Small, well-run companies exist all over the world providing investors with dynamic growth potential and attractive investment opportunities. Despite this, international small cap equities remain underinvested and largely overlooked by investors. While it might be hard to believe in today’s world of increased globalization, advanced technology, and greater access to capital markets that international small cap stocks remain mostly undiscovered, investors should view this as an opportunity. We believe there are unique benefits for investors to weigh when considering an allocation to international small cap equities.

1. Historical Outperformance
   International small cap equities have outperformed the broader U.S. equity markets over the past 15 years, on both an absolute and risk-adjusted basis, while at the same time consistently outperforming international large cap equities on a trailing 3-year, 5-year, 10-year, 15-year, and 20-year basis. Research shows many international small cap companies receive limited analyst coverage, resulting in a vast and largely overlooked universe of opportunity. This dynamic allows for price inefficiencies, which can translate to higher return potential and reward disciplined and experienced managers who take the time to research international small cap equity investment opportunities.
2. Growth Opportunities at Attractive Valuations
   In today’s growth-constrained world, international small cap companies are expected to grow earnings faster than U.S. and larger international peers over the next 12 months. Even with these favorable growth characteristics, international small cap equity valuations trade at a discount to domestic small and large cap companies and only at a modest premium to international large cap companies despite a 50% higher expected growth rate.
3. Portfolio Diversification
   In addition to providing investors with higher return potential and excellent growth opportunities, international small cap equities can also act as an effective diversifier in portfolios. International small cap equities have historically exhibited a lower correlation to the S&P 500 than domestic small cap and international large cap stocks. Adding dedicated international small cap exposure to a portfolio has the potential to increase expected return while at the same time helping to reduce overall portfolio volatility.

Despite the potential for continued outperformance, higher expected growth, and enhanced portfolio diversification that international small caps may provide, many investors are not yet taking advantage of the opportunities that exist throughout the world. We think it’s time investors consider a dedicated allocation to international small cap equities.

For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus at www.manning-napier.com or by calling (800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company.

Past performance does not guarantee future results.

All investments involve risks, including possible loss of principal. Small-and medium-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Investments in foreign securities and emerging markets countries involve greater volatility and political, economic, and currency risks and differences in accounting methods. These risks are greater for emerging markets. Please note that diversification does not assure a profit or protect against loss in a declining market.

Source: Morningstar. ©2017 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results. International small cap equity data is representative of the MSCI ACWI ex USA Small Cap Index (Net) which is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of small capitalization developed and emerging markets, excluding the United States. “Net” indicates that this series approximates the minimum possible dividend reinvestment. The dividend is reinvested after deduction of withholding tax, applying the rate applicable to non-resident individuals who do not benefit from double taxation treaties. MSCI uses withholding tax rates applicable to Luxembourg holding companies.

The Manning & Napier Fund, Inc. (the Fund) is managed by Manning & Napier Advisors, LLC (Manning & Napier). Manning & Napier Investor Services, Inc. (MNBD), an affiliate of Manning & Napier, is the distributor of the Fund shares. Manning & Napier has contracted Rainier Investment Management, LLC, an affiliate of Manning & Napier and MNBD, to sub-advise the International Discovery Series.