Biggest Small Cap Outflow in a Decade

Small-caps have seen the biggest outflow in 10 years, according to a recent Bloomberg article. The article says that after being “spooked by the steepest selloff in the domestically focused stocks” since the election, last week investors pulled $3.5 billion from the biggest ETF that tracks the Russell 2000 Index. It adds, “The biggest outflow in 10 years comes less than a month after small caps roared to an all-time high on speculation Trump administration policies would supercharge growth in the world’s largest economy.” The small-cap index, the article says, is less liquid than the S&P 500 and more reactive […]

A Contrarian View May Be in Order

The seven-year-old bull market that started in the aftermath of the financial crisis could be facing a shift over the next five years, says Validea CEO John Reese in last week’s Globe and Mail. Reese suggests that such a shift could include a resurgence of emerging markets and trends favoring cyclical, value and small cap stocks over defensive, growth and large cap names. “Investors appear to be betting that economic growth has the potential to come in better than expected in the near term, because cyclical companies are sensitive to economic growth trends.” “Perhaps,” he says, “investors have grown wary […]

Investing Principles Part V: Buying Small Cap Stocks

In our final installment of discussion of the Tweedy Browne publication What Has Worked In Investing, we’ll take a look at the relative performance of small-cap versus large cap stocks. We addressed this subject in a recent article for Forbes that discussed the potential relative performance of small and large cap stocks in general terms as well as within the context of impending rate hikes. While, in recent years, we point out that small caps have trailed larger names, we also provide historical data showing that on the whole small-cap stocks have outperformed large caps. Our data also illustrated that, […]

Want Private Equity Like Returns? Try a Levered Small Cap Stock Approach.

One young hedge-fund manager says that an investor can enjoy the same hefty returns touted by private-equity firms (through the purchase, turnaround and resale of troubled companies) through buying highly leveraged small-caps stocks. That manager, Dan Rasmussen, is profiled in a recent article by Forbes’ Daniel Fisher. Rasmussen makes the bold argument, Fisher writes, that private equity “isn’t that complicated.” With a history and literature degree from Harvard, Rasmussen was one of the first undergraduates hired directly by Bain Capital. He was assigned to a team that analyzed “what worked in private equity and what didn’t,” and after examining 2,500 […]

Looking for Value in Un-Love Small Cap Stocks

Small-cap fund performance has taken a lot of heat lately, and the “small-cap premium” has been called into question. In a recent article for Nasdaq, John Reese, CEO of Validea, explains how the historic outperformance of small-caps compared to large-caps has reversed in recent years. This has raised a lot of questions in the investment community and has led to a study by a team at U.S. hedge fund AQR, the findings of which resurrected the idea of the small-cap premium by introducing the quality factor into the analysis. The study found that, once the underlying business fundamentals such as […]