TL;DR
Research by Elroy Dimson, Paul Marsh and Mike Staunton for UBS says the smallest shares in the FTSE outperformed the wider market by about 2.5% a year on average from 1900 through 2025. That long-run pattern has reversed since 2010, a period Henderson Smaller Companies Investment Trust manager Cassie Herlihy describes as a “lost decade” for UK small caps.
UK small-cap shares have outperformed the wider market over a long historical period, but that pattern has reversed since 2010, according to research cited in a MoneyWeek report. Elroy Dimson, Paul Marsh and Mike Staunton’s UBS research puts the smallest FTSE shares’ average annual lead at about 2.5 percentage points from 1900 to the end of 2025; Henderson Smaller Companies Investment Trust manager Cassie Herlihy calls the post-2010 period “something of a lost decade” for the sector.
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The historical comparison is the report’s central evidence for the potential significance of smaller companies in UK equities. The UBS research, by Dimson, Marsh and Staunton, compares the performance of the smallest shares in the FTSE with that of the wider market over the period from 1900 through 2025. It reports an average outperformance of around 2.5% a year. This is a long-run average, not a claim that small caps outperformed in every year.
The report also describes a marked change in the more recent period. Since 2010, the historical advantage has gone into reverse, and small caps have lagged the wider market. Herlihy’s “lost decade” characterization conveys the prolonged nature of that weaker stretch, but the source material does not provide a specific annual return series, an exact start-and-end comparison for the reversal, or a measure of its size.
The figures are presented as historical market-performance evidence, not a forecast. The source material does not specify the precise index construction, whether returns include dividends, or how the comparison accounts for inflation, fees or changes in the market’s constituents. Those details matter when interpreting a long-period average alongside a recent reversal.
The contrast matters to investors and readers tracking UK markets because it shows that long historical averages can conceal extended periods of underperformance. Small shares’ reported advantage over more than a century does not mean they will lead over any particular investment horizon. The reversal since 2010 is a reminder that the timeframe chosen can materially change the picture.
Small-cap performance can also affect how investors assess the breadth of a market recovery: gains concentrated in larger companies do not necessarily mean smaller listed businesses are sharing in them. The source, however, does not provide evidence on the causes of the post-2010 reversal or the current state of small-cap valuations, earnings or investor demand. The data support a performance comparison, not a conclusion that the sector is now undervalued or due to rebound.
For readers considering investment decisions, these figures are historical results, not a guarantee of future returns. The report’s summary offers no company-specific recommendations, portfolio allocation guidance or assessment of risks such as liquidity. Individual small-cap shares may perform differently from the broader group.
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From Century-Long Gains to 2010
The timeframe is central to the report’s argument. UBS research covering 1900 to the end of 2025 points to a positive average annual difference for the smallest FTSE shares against the wider market. Looking only at that century-plus period would leave out the later shift: the report says the pattern reversed from 2010 onward.
The phrase “small caps” refers here to the smaller shares in the FTSE comparison, rather than a single named company or a complete description of all UK-listed smaller businesses. Herlihy’s perspective comes from her role as a portfolio manager at Henderson Smaller Companies Investment Trust. The material supplied does not include further comments from her explaining what drove the weaker performance.
Drivers of the Reversal Remain Unspecified
The supplied report summary does not explain why small caps have lagged since 2010, quantify the cumulative gap over that period, or say whether performance has changed in 2026. It also does not identify the exact FTSE indices or return methodology behind the historical comparison. The 2.5% figure is an average annual outperformance over the full 1900–2025 period; it should not be read as the return in each year or as the size of the recent reversal.
There is also no forecast in the source material about whether the long-term pattern will resume. It gives no valuation comparison, earnings outlook or account of how the findings apply to an individual company. Those questions remain open on the information provided.
Further Data Needed to Judge Prospects
The report’s historical comparison establishes the tension between long-run outperformance and post-2010 weakness, but the supplied material does not announce a new policy, market event or forthcoming decision. Readers seeking to assess the sector’s current direction would need more recent performance data and the underlying index methodology, as well as evidence about company fundamentals and market conditions.
Any future update on the trend would need to show whether the period of relative weakness has continued or shifted, using a clearly stated timeframe and comparison baseline. Until such information is available, the source supports a description of past performance, not a confident prediction about what small caps will do next.
Key Questions
What did the UBS research find about UK small caps?
Research by Elroy Dimson, Paul Marsh and Mike Staunton says the smallest FTSE shares outperformed the wider market by around 2.5% a year on average from 1900 through the end of 2025.
How have UK small caps performed since 2010?
The MoneyWeek report says the long-term outperformance trend reversed after 2010, with smaller shares lagging the wider market. The supplied material does not give the cumulative size of that gap.
What does Cassie Herlihy mean by a “lost decade”?
Herlihy, a portfolio manager at Henderson Smaller Companies Investment Trust, uses the phrase to describe the prolonged period of weakness for UK small caps. The source does not provide a more detailed explanation of the causes.
Does the historical outperformance mean small caps will do better in future?
No. The reported figures describe historical performance; they do not guarantee future returns or establish that small caps are set to outperform.
Source: moneyweek.com
