Peril and Opportunity in Small Value Stocks

The fortune of small value stocks are “irrevocably linked” with today’s key economic questions, according to a recent Morningstar article. The article argues that this segment of the market is vulnerable: “Even at peak conditions, most small value firms are relatively unprofitable. Nor are they financially robust, recording an average grade of C+ on Morningstar’s Financial Health measure (the market norm being B+).” It adds that these issues might be more manageable but that small… Read More

Small-Cap Value Gets an Apology

A recent article in Verdad Research defends small-cap value investing by arguing that “though the past few years have been painful for small-value investors, this is perhaps a once-in-a-century buying opportunity in this deeply out-of-favor asset class.” The article notes that two statistical predictors for future small-cap returns—high yield spread and growth/value price ratios—are at “some of their highest readings ever on record” which represents “an extremely rare ‘double eclipse’ for market historians.” High yield… Read More

Small-Cap Value Stocks May Be Worth the Wait

According to a recent article in Barron’s, “academics have found that small-value stocks beat more popular growth ones if you can wait out the fallow periods.” “One of the most important qualities of being a value investor is patience,” the article asserts, adding that this has been especially true in recent years for “much-ignored small-cap value stocks.” It cites comments from Jeff John, senior manager of the American Century Small Cap Value Fund: “Quality has… Read More

Five Questions: Private Equity in Public Markets with Brian Chingono

By Jack Forehand (@practicalquant) —   There are many misconceptions about private equity investing. Many investors view it as a domain where the rich and institutions earn outsized returns that are not available to the average person. It is viewed as an exclusive club with huge benefits that only the elite can be part of. But at its core, private equity is just investing in companies much like public investing is. It is a bet on the… Read More

Securing Alpha From Small-Cap Stocks

  Vitali Kalesnik and Noah Beck of Research Affiliates provide a detailed analysis of how investors may be able to capture alpha in the small-cap sector.  They liken investing in small-caps to fishing in a pond where alpha is available, but the fisherman’s strategy and skill determines whether one can “reel it in.” They suggest that “small size as a standalone source of premium” is not reliable, but contend that “[e]ven if small companies are… Read More

Hulbert: Small-Cap Value Stocks May Be Ripe for Impressive Gains

Small-cap value stocks are risky but they also historically produce jaw-dropping gains at the begining of bull markets, Mark Hulbert writes in the New York Times. Referencing academic research performed by professors Eugene Fama (University of Chicago) and Kenneth French (Dartmouth), Hulbert writes that small-cap value stocks (stocks with the lowest price/book ratios) “gained 17.1 percent, on average, in the first three months following the 13 market bottoms since 1969, equivalent to an annualized rate… Read More