Small-Cap Stocks Are Charging Ahead

Jul. 14, 2016 1:02 PM ETAG, AGI, BCOV, CDE, CLF, CPXX, EMES, EXAS, EXEL, FMSA, IWM, MEET, MUX, RHHBY, QQQ, QUAD, RYI, TALO, SPY, X, MUX:CA, AGI:CA, FR:CA2 Comments

Summary

  • Small-cap stocks have risen strongly from their February lows.
  • Risk appetite remains strong, and portfolio exposure to this dynamic segment is prudent.
  • Favorable Fed policy and signs of a steadier economy will continue to push small-caps higher over the course of the Summer.

Graycell Advisors - Smallcap PortfolioAfter the surprise result in Brexit polls, when the market began its rapid descent, we had expressed our viewpoint in the article "The Stock Market Is Not Ready To Give Up," making a case for continued upside in stocks through the summer.

In this article, we would like to highlight the performance of the small-cap market and its leading role since the market began recovering after reaching a 52-week low in February this year.

During 2015, small caps, as represented by the Russell 2000 Index and its tracking ETF (IWM), declined -6%, compared to the broader market represented by indexes Nasdaq Composite (QQQ) and S&P 500 (SPY), rising +6% and +1% respectively. The divergence between small caps and larger caps was due to risk-averseness, driven by the possibility of an interest rate policy shift by the Federal Reserve for the first time in 6 years.

But the overall 2015 performance masked the steep correction for small caps that began in July 2015 and continued till February 2016.

for sharper image)

Source: GraycellAdvisors.com

In our posting last year, The Song Of The Fed, and another one earlier this year, The Fed's Done For Now, we had taken the position of being in cash for the second-half of 2015, and acquiring new positions in March of 2016. We had noted that:

With additional volatility comes a shrinkage of risk appetite, which disproportionately affects relatively higher-risk segments of the market like small caps…

This alignment allowed the Graycell Smallcap Portfolio to be up +15% last year versus a decline of -6% experienced by the Russell 2000.

However, 2016 has presented a contrasting picture to 2015. The small-cap index has kept pace with the broader market each month, since February's low.

for sharper image)

Source: GraycellAdvisors.com

The participation of the small-cap index

This article was written by

Tarun Chandra, CFA profile picture
4.65K Followers
A healthcare growth portfolio with a record of consistently strong returns

I have worked as an Analyst on both the Buy (Asset Management) and Sell (Investment Brokerage) sides, as well as in Strategy and Finance roles for technology services companies. For many years, I have been publishing risk-adjusted, return-driven quantitative model portfolios.


We have 3 services - Prudent Healthcare, which is available only on Seeking Alpha, Prudent Biotech, and Prudent Small Cap. You may even register for a Free Monthly Pick from the model portfolios for biotech and small caps on those pages.

We have collaborated with Seeking Alpha to launch a Prudent Healthcare model portfolio, available exclusively in the SA Marketplace. It's a monthly service with a leading track record in healthcare performance.

If you have any questions, please feel free to write to support@PrudentHealthcare.com.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (2)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.