small cap
Investors are showing increased concern about large-cap stocks due to high market concentration and lofty stock valuations. Other factors combine to make a compelling case for small caps.
Small-cap companies are poised for a rebound. The sector is best approached through an active investment strategy where expertise and a deep understanding of the individual businesses and their risk-and-reward characteristics are necessary for success.
In the Financial Analysts Journal, Emmanuel R. Pezier and Paolo F. Volpin analyze a private dataset of a UK fund’s engagements with small-cap newly public firms and demonstrate that “behind-the-scenes” engagements resulted in 8% to 10% in cumulative abnormal returns.
Small-cap investing is a “negative art.” But in addition to steering clear of losers, small-cap investors have to demonstrate the “positive art” of picking winners.
The legendary musician Prince exhorted us to “Party like it’s 1999,” but today, as a small-cap stock investor, I’d flip the calendar one year ahead, to 2000.
While most of us may enjoy rooting for the Davids, we're probably better off betting on the Goliaths. Nicolas Rabener explains.
Does factor investing in micro- and small-cap stocks in the United States offer any additional alpha?
Elizabeth M. Lilly, CFA, thinks that small-cap stock investing is an excellent way to leverage active management. If you do the research.
After analyzing small-cap biotech data from 2007 on, Akash Goyal has found that higher hedge fund ownership is positively correlated with forward returns and that stocks with higher short interest are correlated with negative forward returns.
“Successful investing requires both art and science,” said Preston Athey, CFA, a 34-year veteran of T. Rowe Price. “When T. Rowe Price was founded back in 1937, Mr. Price always considered investing an art, and in fact, he often considered it a black art.”