Are Small Cap Stocks Better Than Large Cap Alternatives?

Whenever you look to invest in the stock market, it’s important to note that there are a large range of options in terms of the type of equities that you invest in.

Not only this, but there are also a wide range of investment vehicles through which you can leverage stocks, from CFDs and exchange-traded funds (ETFs) to mutual funds.

In this post, we’ll look at the concept of investing in company stocks through a mutual fund, while asking whether this is a particularly reliable option and if it’s right for you.

What Does it Mean to Invest in Stocks via a Mutual Fund?

In simple terms, mutual funds work by pooling money together from a wider group of investors.

This capital is subsequently invested into various securities, from fixed-income products like bonds and money market accounts to stocks.

However, funds will have variable investment objectives, to which their portfolios are tailored and adjusted to include a diverse range of equities. 

They then generate income for investors by allocating assets within the fund, while affording investors far greater flexibility and instant diversification.

This at least partially explains the popularity of funds over individual stocks, as they provide more opportunity to speculate on price movements and profit from both increases and declines in value.

Small vs. Large Cap Equities – What are the Benefits?

One particularly viable option is a VT (Vanguard Total World Stock) ETF fund, which typically provides exposure to a broad range of stocks across different equity ranges.

Then there’s Downing’s own VT Monthly Income Fund, which also offers access to listed and small-cap UK stocks that are capable of both paying regular dividends in the near-term and boasting long-term capital growth prospects.

There’s a clear advantage to targeting promising small-cap equities, as they’re often represented by startups or small businesses that have immense growth potential in the medium and longer-term. 

This represents the very best in value-led investment, as Downing’s asset managers target small-cap companies with attractive valuations that can rise incrementally over an extended period of time.

However, equities are also selected in a considered and discernible way, so that investors are able to minimise exposure and their inherent risk while simultaneously accessing a sector-beating yield. 

The capacity to pay monthly dividends is also highly appealing to investors, as many small-cap funds don’t fulfill this criteria.

Instead, they simply ask investors to hold onto a secure store of wealth as the small-cap stocks continue to grow, which increases your exposure and the risk of you losing money over time.

The minimum investment threshold here is also manageable, with a £1,000 lump sum and a subsequent payment of £500 required to participate. Or, you can commit £100 a month to the fund, depending on your personal circumstances and the nature of your capital holdings.


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