Good things come in small packages. Small-cap exchange traded funds (ETFs) more than proved this in 2010 by being a part of the best-performing S&P group.
Josh Lipton for MinyanVille reports that last year, large-caps jumped 12.8%, but that wasn’t enough to beat either mid-caps, which rose 24.9%, or small-caps, which gained 25%.
The average company in the Russell 2000 posted a 165% gain in income last year, the most since 2003, as S&P 500 profits rose 29 %, according to data compiled by Bloomberg. [Small-Cap ETFs: Small In a Big Way.]
Mark Hulbert for MarketWatch reports that the small-cap favoritism often seen in January may be enough to cancel out thoughts of another asset class. In all Januarys since 1926, according to Fama and French, the smallest-caps have beaten the largest-caps by a huge amount — 7%, on average, in fact. So, is the January effect in effect now? Well, that depends:
- PowerShares S&P SmallCap Financials (NYSEArca: XLFS): This fund is down 1.2% over the last five days
- iShares S&P SmallCap 600 Index (NYSEArca: IJR): IJR is down 0.5% over the last five days
- Schwab U.S. Small-Cap (NYSEArca: SCHA): SCHA is actually up 0.4% over the last five trading days
- WisdomTree SmallCap Dividend (NYSEArca: DES): DES is down 0.2% over the last five days
Lackluster markets kicking off the year may have more to do with this than any long-term weakness lurking in small-caps, so don’t count them out just yet. Many are still above their long-term trend lines and worth considering once they get going again.
Furthermore, the ETF Professor on Benzinga reports that the fun in small-caps may just be starting. Profits among smaller companies rose five times faster than larger ones last year, and analysts’ predictions show the outperformance will continue. An 80% jump in profit for small cap shares have been forecasted for 2011, which may take our loyalty way past January.
For full disclosure, Tom Lydon’s clients own shares of SCHA.
Tisha Guerrero contributed to this article.
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.