For the first three quarters of 2013, U.S. equity markets performed strongly—the S&P 500 Index was up nearly 20%. However, small caps did even better, with the Russell 2000 Index being up almost 28% through September 30, 2013. This current outperformance of small caps over large caps continues a performance run that is largely unprecedented in the last 80-plus years of historical data.1 In this blog, we discuss strategies that one might want to consider in the small-cap segment in light of this current outperformance period.
Examining the Historical Record
I saw the chart below on the performance of small caps versus large caps in an asset allocation strategy report prepared by BMO Private Bank strategists Jack Ablin and Jeff Weniger (CFA, Senior Investment Analyst). Given the current unprecedented performance run of small caps over large caps that has lasted 13 years so far, Jeff and Jack ask whether it is time for a leadership change to large caps. I believe that this is a very worthwhile question.