MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Small-Cap Stocks

Observant1
edited June 7 in Fund Discussions
The inimitable Jack Hough discusses small-cap stocks in his column this week.

"It’s an asset class so perennially disappointing that mutual fund reports should come with sympathy cards.
The Russell 2000 small-cap index should be renamed the Don’t Do It.
I’d rather diversify into betting pickleball on FanDuel."

On a more serious note...

Valuations are the strongest predictors of small-cap returns.
Free cash flow and dividends are better predictors of small-cap performance than earnings growth rates.
Historically, small-caps have outperformed during episodes of stagflation.
More than a third of companies in the Russell 2000 are unprofitable
while the tally for S&P SmallCap 600 companies is only 9%.
Over the past decade, investors made 108% in the Vanguard S&P Small-Cap 600 ETf
vs. 90% in the iShares Russell 2000 ETf and 236% in the SPDR S&P 500 ETf.

"BofA takes all of this to mean that small-cap quality has bottomed
and begun to improve, and that AI can pay off for small companies, too.
In the debate between 'small-caps are due' and 'small-caps are dead,'
the bank reckons the truth is somewhere in the middle,
and that small-caps are a good diversifier, with better stock-picking opportunities than large-caps."

The author mentions several small-cap funds and individual stocks to consider.

https://www.msn.com/en-us/money/topstocks/small-cap-stocks-are-underloved-why-their-time-may-be-coming/ar-AA1GewXj

Comments

  • WABACWABAC
    It's a sector I'm always in, at least in my taxable account. I expect that some part of the IRA will include some, some day.

    Whether you're in larger, or smaller, caps, I think there are better options than cap-weighting everything hanging on to a market listing.

    I smiled at the reference to dial-ups. It's not hard to find sites on the internet that will play the sound for you if you're nostalgic.
  • Sven
    Our exposure is limited to mid-cap funds due to the large cap dominance in the last 10 years. This is unusual period where Mag 7 stocks provide a sizable earnings for S&P 500 index. Can this continues in the near future?

  • a2z

    keep in mind the R2000 may be representative of companies of that mkt size, but not reprentative of how one should invest. more so than most american indices, it has a high % of current and historically unprofitable companies.

    probably the best example of why any mkt cap weight index makes little fundamental sense.
  • yogibearbullyogibearbull
    There are better SC indexes - more selective IJR, SPSM & earnings-weighted EES.

    IWM is OK for benchmarking. Many funds use it because it may be easier to beat.
  • DrVenture
    edited June 9
    I held OTCFX at TRP for decades. Until I realized that the long term gains that I had accrued were in danger of washing out. I began selling several years ago and am now down to zero. I exited while my annualized gains were still ~17%. It was a good run.

    Not sure I will ever wade back in. Can we even predict how tariffs will impact small caps?
  • MarkMark
    From the article: "Free cash flow and dividends are better predictors of small-cap performance than earnings growth rates."

    If you're a believer there's a fund for that - CALF. I used it awhile back probably when there was another banging of the drums for small-caps but am currently out.
Sign In or Register to comment.