The under-performance of small capitalisation stocks in recent years has by now been well documented. With the advent of the euro zone this under-performance has been given an added twist as local institutions diversify their portfolios throughout the new currency zone.

This further derating of smaller company shares has been particularly marked in states such as Ireland and the Netherlands where the domestic institutions hold a relatively high proportion of their own domestic equity market. With the removal of currency risk amongst the 11 founding members of the euro, most institutions are now viewing the euro zone as their new "home" market. As a result Irish institutions have been selling Irish companies and Dutch institutions have been selling Dutch shares and reinvesting the proceeds across Europe.

This rebalancing of institutional portfolios is not occurring to the same extent in the larger markets of Germany and France because domestic equities represent quite a small part of institutional portfolios.

Therefore, whilst Irish and Dutch institutions have been buying French and German shares, the French and Germans have not been buying Irish and Dutch shares.

However, in recent weeks signs have emerged that the prices of many smaller companies had reached a point where buyers were being tempted to invest. The past month has seen some dramatic upward moves in the share prices of a number of previously under-performing shares on the Irish market. The table highlights how at least some of the laggards of the past 12 months have recently turned the corner. Whilst the list includes two of the market's larger companies - Smurfit and Waterford Wedgwood - it highlights that the share prices of a number of smaller companies have bounced sharply over the past month.

Despite these very large percentage gains over the past month it is noteworthy that all of these shares are still trading at levels substantially below the peaks achieved 12 months ago. For example, despite the 13 per cent rise in IWP's share price over the past month the shares are still languishing at less than half the levels of one year ago. The experience of Waterford Wedgwood shows just how badly the shares had performed. The rise of 37 per cent in the share price over the past month still leaves the shares trailing at one third of their value of 12 months ago.

The signs of vitality in some of the mid-cap and small-cap stocks contrasts with the more recent pedestrian performance of the two main banking stocks whose share prices have barely changed in the year-to-date. The recovery in the share prices of many of the markets mid- and small-cap companies probably has further to go given how low many of these share prices have fallen. However, it probably does not mark the beginning of a long-term trend whereby small companies overtake their larger rivals. The advantages of size, global reach and deep market liquidity, will continue to act to pull a high proportion of investment funds into the larger capitalisation stocks.