Joining The Small Cap Discussion

A lot of noise has been made recently about the Russell 2000 outperforming the large cap indices. The following thoughts come to mind:
  • The Russell 2000 has been outperforming since December and it has been rarely mentioned until recently. Once everybody starts noticing something it usually means it is late in the game. In the near term I expect that the period of outperformance is nearing its end.
  • In December, the large cap space saw $50 billion worth of secondary offerings between Wells Fargo, Bank of America and Citigroup. I believe the digestion of that supply has been a major cause of the underperformance.
  • Hedge funds, which traffic heavily in small caps, took down risk at the end of the year to lock in performance. I suspect that they have been re-risking recently.


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