When it comes to large-cap equity investing, smaller asset management firms are proving to outperform their larger peers in the asset class, according to research compiled by Northern Trust.

The Chicago-based firm’s study, “No Contest: Emerging Managers Lap Investment Elephants” Northern Trust concluded that investment firms with less than $3.6 billion under management outperformed the largest firms and all other groups studied, as well as the S&P 500 Index, over the five-year period ending June 30, 2011, according to an Oct. 26 statement.

The study analyzed performance data from eVestment Alliance for large –cap core domestic equity products, and includes 284 investment firms with total assets under management of $12.3 trillion.

Interestingly enough, the findings conclude that firms with less than $3.6 billion in assets under management gained 0.67% per year in their active large-cap domestic equity portfolio for the five-year period, besting both larger firms and the S&P 500 Index for the same time frame.

Additionally, the median small manager outperformed the median large firm by 71 basis points per year, the statement said. This translates to an advantage of more than $7 million on a typical $200 million institutional allocation over five years, it was noted.

John McCareins, Investment Program Manager at Northern Trust, said the results indicate that investors should begin expanding their search into the emerging universe.

"With continued consolidation in the asset management industry, the largest firms effectively are the financial markets in which they operate, in terms of assets and transactions,” he said. “These firms may have difficulty stepping aside when the market enters a downdraft, but we believe that small entrepreneurial firms can benefit at such times from management focus, rapid decision processes and fewer liquidity constraints."