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Smallcaps have significantly underperformed largecaps in August, as Josh Lipton points out....

Smallcaps have significantly underperformed largecaps in August, as Josh Lipton points out. Largecaps are currently the better value at 13x 2010 estimates; Smallcaps trade at 19x 2010 P/Es. Dividends may offer another explanation for the shift to largecaps: SPDR Dow 30 ETF (DIA) yields 2.6% vs. 1% for iShares S&P Smallcap 600 (IJR).
Comments (5)
  • Stone Fox Capital
    , contributor
    Comments (5790) | Send Message
     
    or maybe its just b/c smallcaps go down faster then largecaps. This is all normal historical moves.
    26 Aug 2010, 02:51 PM Reply Like
  • SA Editor Jonathan Liss
    , contributor
    Comments (466) | Send Message
     
    That's another possible explanation mentioned in the Minyanville piece quoted above - that falling smallcaps are a precursor to a large sell-off in largecaps. I think for now, it's too early to tell which explanation is correct - the hunt for greater dividend income in an uncertain equity/low yield bond environment, or a precursor to a widespread sell-off. Only time will tell...
    26 Aug 2010, 03:04 PM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    The relative valuation of large- and small caps is the REVERSE of what it was ten years ago. The large caps are now cheaper as a group, even allowing for their slower growth.
    26 Aug 2010, 03:06 PM Reply Like
  • DrBenway
    , contributor
    Comments (300) | Send Message
     
    another possible explanation is small caps have very volatile earnings (less diversification). So if the economy improves, their earning will rebound faster than large caps, if it stalls (as of now), large caps will look more attractive on P/E basis.
    26 Aug 2010, 03:22 PM Reply Like
  • Momintn
    , contributor
    Comments (3830) | Send Message
     
    I think small caps are down so much because Direxion has a popular 3x short etf that traders use to short them. The thing is that they have driven this short etf to such heights that when they all start trying to sell it, the 3x bull etf is going to pop. Today I believe they have caused the small caps to retest their lows. So I am expecting the bull 3x etf TNA to begin going up after Bernanke's speech. If not Friday, then Monday. I think by the end of the month small caps will be even with the rest of the market wherever that is. Holding the 3x etfs isn't recommended but I bet the bears have been doing it anyway. If you look at the market cap on Google, there is more money in the bear small cap 3x ETF than there is in the bull. And it isn't that way on the Nasdaq. So it must be on other exchanges around the world where people are betting more money against US small caps. Kind of sickening when you think about it...
    26 Aug 2010, 04:39 PM Reply Like
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