Michael Burry of The Big Short Sees Passive Investing Bubble

Michael Burry, whose bet against mortgage securities before the 2008 crisis was immortalized in the film “The Big Short” sees another contrarian opportunity in what he characterizes as a “bubble” in passive investment. This according to an article in Bloomberg. The article says, “As money pours into exchange-traded funds and other index-tracking products that skew toward big companies, Burry says smaller value stocks are being unduly neglected around the world.” In a note to Bloomberg… Read More

Small-Cap Troubles Signal Economic Worry

Small company stocks have been hit hard this year, and “investors are beginning to wonder if that is a taste of what is to come with the wider market.” This according to a recent article in The Wall Street Journal. The divergence in performance between small- and large-cap stocks is raising flags for some, the article reports, adding that small-caps—which derive more revenue from domestic businesses—”typically rise ahead of a wider market rally and fall… Read More

The Size Factor: A Case Against Small Caps

Although investors expect to be compensated for the higher inherent risk associated with small cap stocks, historical returns haven’t supported this thesis, according to an article in CFA Institute that analyzes whether different size metrics might have generated better performance. “Market capitalization is the prevailing metric for weighting stocks in equity indices. But it’s not the only way to measure the size of companies,” the article argues, outlining four alternative metrics that CFA Institute applied… Read More

Rules for Small-Cap Investing

An article in Bloomberg last month profiles Samantha Lau, co-chief investment officer of small and SMID growth strategies at AllianceBernstein. Lau subscribes to some basic rules of small-cap investing, including: “Never sell half of your position. If you think something is wrong, exit and revisit.” “It’s never too late to sell a loser.” “A good company is not always s a good stock.” The article explains that Lau, along with four co-managers, adhere to a… Read More

Small and Passive is Better in Money Management

A recent S&P report offers deep-dive analysis into mutual fund performance over the past year versus various benchmarks, according to a Bloomberg article by columnist Barry Ritholtz. “Growth stocks are trouncing value,” Ritholtz writes. “Small caps are beating large. And more professional managers are beating their benchmarks now than a year earlier.” Here are some highlights of the findings: For investors in U.S. equity markets, small-cap stocks showed the strongest performance, gaining 20.5 percent, followed by… Read More

Small Cap Premium at Historic High

A recent article in Indexology Blog reports that, for the first half of 2018, small caps are outperforming large caps by the largest margin in eight years. In the past four months, it adds, the outperformance has reached 10.1%, “contributing to the 5th biggest realized small cap premium in the first half of any year in history.” Smaller cap stocks the article explains, “are less sensitive to international relations generally from the higher percentage of revenue… Read More

Small-Cap Picks from Top Global Investor

A recent Barron’s article profiles Magnus Larson–lead manager of the AMG TimesSquare International Small Cap Fund ($1.2 billion)—who has been able to deliver a 13.6% five-year annualized return (reportedly beating 94% of its peers) by “using old-fashioned stock picking, with analysts doing on-the-ground research at specific companies.” According to the article, “international small-mid-capitalization stocks are one of the few market sectors where active management can consistently add value. They are poorly covered by financial analysts,… Read More

Small Caps Outpacing Multinational Peers

Small cap stocks are climbing, a departure from last year’s dip as investors channeled money into larger multinational companies poised to benefit from global economic growth. This according to a recent article in The Wall Street Journal. The article reports that, in recent weeks, data suggests that worldwide momentum might be faltering. “Growth in the eurozone appears to have slowed in the first quarter of the year,” it says, adding that Japan’s economy showed a contraction… Read More

Aiming for Private Equity-Like Returns Using a Small Cap Value Quant Strategy

By Justin J. Carbonneau (@jjcarbonneau) —  “I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable.” — Warren Buffett Of the twelve quantitative models we run publicly on Validea, nine of them look at a company’s level of debt in their assessment of a firm’s… Read More

A Tale of Two Small-Cap Indexes

A recent article in Barron’s compares the performance of two small-cap indexes: the Russell 2000, the most commonly-used benchmark, and the lesser-known S&P SmallCap 600 index. According to the article, over 90% of investment funds focus on the Russell 2000, but this index has underperformed its S&P peer for more than twenty years. “The difference isn’t trivial, either,” the article points out, adding that when reinvested dividends are taken into account, the difference amounts to… Read More