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