A version of this article was published in the August 2017 issue of Morningstar ETFInvestor. Download a complimentary copy of Morningstar ETFInvestor by visiting the website.
Depending on which index provider's definition you rely on, small caps make up anywhere from 3% to 12% of the total investable market capitalization of the U.S. stock market. Looking outside U.S. borders, small caps account for 15% of the MSCI All-Country World ex-U.S. Index. At market weightings, this would amount to an allocation to U.S. small caps of roughly 1%-4% and about 5% to ex-U.S. small caps within a globally diversified, 60/40 stock/bond portfolio. This bit of context is important. Before making a big deal about small-cap stocks, it's imperative to remember that they represent a small slice of global stock markets and just a sliver of the global market portfolio.
Ben Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.