Small-Caps on the Upswing

As all eyes continue to be on the president-elect, questions abound regarding if and how he will implement the changes he championed on the campaign trail. In the meantime, however, an article in this week’s Barron’s argues that his election has proved a shot in the arm for small-cap stocks. That article asserts that, since election day, the small-cap Russell 2000 index has risen 10% compared with the S&P 500’s 2% gain and “the advance of the… Read More

How Could Rising Rates Affect Small-Cap Stocks?

As we continue to wait for the Fed to move on rates, questions loom as to how a rising rate environment will affect the markets. In a recent article for Proactive Advisor magazine, Validea CEO John Reese shared his thoughts on how this could specifically impact small-cap stocks. Conventional wisdom, he explains, says that rising rates can negatively affect small-cap performance (companies with market capitalizations of between $250 million and $2 billion) since: It leads… Read More

Investing Principles: What Has Worked

For the next several weeks, our daily blogs will include information from a 1992 publication by the investment firm Tweedy, Browne Company LLC entitled What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated with Exceptional Returns. The booklet includes data from over fifty studies of share performance woven together with insights based on the firm’s five plus decades of industry experience as to which stock characteristics have provided the best returns over… Read More

Big Opportunity In Small Stocks?

It’s no secret that the market doesn’t look too cheap right now. In fact, by many measures, it’s overpriced. But the difference in the valuation of small stocks and large stocks right now is striking, Validea CEO John P. Reese writes in his latest column for Forbes.com. “Since the end of 2005, my company has been tracking the valuation characteristics of the several thousand stocks in our database, a pretty good approximation of the U.S.… Read More

Investing in Small Caps – Beware of Style Drift & Avoid Junk

If you are investing in small cap stocks, it is important not to make these two big mistakes writes Mark Hulbert for Barrron’s, because after few years of lackluster relative returns small caps look poised to turn the corner. As Hulbert points, smaller cap stocks have outperformed large caps over the long term but “for the past five years the Russell 1000 (which contains the 1,000 largest U.S. stocks) has beaten the Russell 2000 (the… Read More

Small Caps Offer Opportunities, Especially When Rates are Rising

Chris Tessin of Acuitas Investments recently authored a piece for the InvestmentNews that outlined the historical pattern of micro-cap and small cap outperformance during periods of rising interest rates. Tessin notes that small firms have now lagged large cap names on a 1, 3, 5 and 10-year basis, and that relative underperformance is now producing an investment “opportunity”. According to Tessin, smaller firms have a history of outperforming during periods of increasing interest rates, and… Read More

Comparing Active and Index/Passive Small-Cap Funds

Writing in Adviser Perspectives, Larry Swedroe of the BAM Alliance evaluates the performance of the 10 largest (by assets under management) actively managed small-cap funds over the period 2000-15 in comparison to the performance of small-cap Vanguard index funds and Dimensional Fund Advisors passively managed structured asset class funds, and also uses S&P Indices Versus Active (SPIVA) Scorecard data for a similar comparison over the 2005-15 period. His broader purpose is to investigate the claim… Read More

MarketWatch’s Hulbert: Now Could Be the Time for Small-Caps

Mark Hulbert writes in MarketWatch that “all of [the small-cap] sector’s much-vaulted historical relative strength has come at the end of December and early January,” as reflected in the monthly average outperformance of small-caps vs. large-caps 1926-2015. According to Dartmouth professor Ken French, small-caps usually hit a low around December 20, followed by the highest yields in January. The long-term outperformance by small caps is 2.2%, according to Ibbotson data. French’s day-by-day analysis suggests, however,… Read More

Profitably Switching In and Out of Small-Cap Stocks

  Joe Mezrich, strategist with Normura securities, and colleague Adam Gould have shown that three factors correspond with small-cap performance: low price-to-sales cost relative to large stocks; economic uncertainty (reflected in dispersion of earnings estimates); and expectations for economic growth (measured by treasury yields). As stated in Barron’s, small-caps should outperform “when small companies represent a good value and when investors aren’t driven to big names.” Market history since 1980 bears this out. Mezrich and… Read More