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.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.