Global small companies are well positioned in the current environment to deliver attractive risk-adjusted returns across a range of economic scenarios. Valuations for small companies have come down significantly and now sit below those of large companies - an uncommon situation historically that sets up small companies for higher expected returns going forward.

In the event of an economic slowdown or recession, the market tends to look forward, with small companies beginning to outperform even as the economy bottoms out. This means the economic cyclicality of small companies is often somewhat lagged. Having already experienced a "rolling recession" and earnings downturn, many small companies may be poised to lead the way in an eventual recovery.

But it's not just about playing the cycle. It's also about fundamental resilience at the company level. This is where active management and careful stock selection like that practised by Langdon Equity Partners can add significant value. Greg Dean, Portfolio Manager at Langdon Equity Partners, describes how they focus on finding "businesses compounding earnings at sensible multiples". That is, companies with resilient business models that are able to steadily grow earnings across a variety of macro environments.

This emphasis on company-specific resilience is critical because as Greg points out, whether we technically enter a recession or not, what matters most is what is happening "at the business level". Many of Langdon Equity Partners portfolio companies are now pivoting from an inward focus on controlling costs to an outward focus on strategic opportunities. With stronger balance sheets and more efficient operations than peers, these companies are well-equipped to take market share and make opportunistic acquisitions. It's a "survival of the fittest" environment that will see strong operators extend their lead.

Langdon Equity Partners intense focus on company fundamentals and sensitivity to valuation should help the portfolio weather volatility and compound returns over time. As Dean explains, they are highly selective, passing on companies with impaired earnings power in favour of those that can deliver sustainable growth across a range of scenarios. They also dynamically manage position sizes, trimming winners as they become more fully valued to control risk.

While not making a specific call on the economy, we believe this combination of attractive small companies valuations and Langdon Equity Partners focus on high-quality, resilient companies has the potential to deliver solid through-the-cycle returns. In an uncertain world, allocating to the "fittest" small companies that are built to survive and thrive could provide both portfolio resilience and 'alpha'.