Will Small-Cap ETFs Continue To Lead Large-Caps?

Small and mid-cap ETFs have dramatically outperformed large-cap ETFs during the past five years. Some feel the long awaited shift to large-cap dominance has just begun. A couple points to consider before re-allocating your portfolio:

• There has been a shift in fund flow as outlined in Murray Coleman’s Investor’s Business Daily article this week. He does a nice job of reporting the facts.
• It would be understandable that small-caps would give back more in a market correction because they’ve made so much on the upside.
• Large-caps had only a minor correction in the past three weeks (3-4%) where the small-caps correction was more dramatic (10-12%).
• Valuations for all domestic asset classes are in line. Small-caps are not more expensive than large-caps.

If the market does recover from here, measure the performance of large-caps vs. small-cap off of the May 24th low. The leader will tend to dominate through an extended recovery.