Questioning a Large-Cap 'Flight To Quality': Small is Still Beautiful

U.S. large-company stocks have yet to outhustle small-company stock assets in any calendar year of the the 21st century. Yet there's ample evidence that a flight to quality is occurring.

The large-cap value proxy, the Dow Jones Industrials Diamonds Trust (DIA), gained nearly 8.9% in the first half of 2007; similarly, large-company value/growth in the S&P 500 a la the S&P 500 SPDR (SPY) raked in 7.1%. Meanwhile, the smaller companies in the iShares Russell 2000 Index (IWM) picked up a respectable, albeit fatigued, 6.4%.

As far as domestic stock gains go, it would appear that investors are heading for safer ground in the bigger brand names. The evidence is similar on a year-over-year basis as well.

Yet when we visit the international scene, investors aren't quite as "flighty." In fact, small is still beautiful.

Take the WisdomTree International SmallCap Dividend Fund (DLS), for example. Its 13.6% gain in the first half of 2007 trounces the large-cap competition's 10.6%. And while WisdomTree International LargeCap Dividend Fund (DOL) is certainly attractive with a 10.6% 6-month profit, what should we make of the small-cap phenomenon abroad?

With global interest rates rising, one should expect to see international large caps making a definitive mark in the near future. Indeed, we've seen pundits sound the "larger is safer" alarm every single year. Still, there the small fries are... and there they keep going and going and going...

Disclosure: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[wixeywaxy:]

If you are nimble enough to pick the right companies it's certain a small company has more potential. There is an advantage for the large caps usually having less downside risk, again if the choice and timing are right. Large caps often trade sideways for four or five years followed by a spurt that can be a very substantial gain. Many people think companies like IBM and GE fit that description and will deliver exceptional gains over the next two to three years. Vic

2007 Jul 10 02:35 PM