The major indexes went on to reach more record highs in Thursday’s trading session after a spate of positive economic data rolled in, including less jobless claims and higher retail sales. The extended bull market is still running, and investors shouldn’t forget to add small cap exposure while the market is still hot to trot.
“It’s not necessarily their intent, but when most investors begin their hunt for a new stock pick, it starts and ends with a large-cap name (a stock with a market capitalization of $10 billion to $200 billion),” wrote James Brumley in Motley Fool “They’re simply easier to find, to the point where investors often just stumble across one they like thanks to the financial media.”
“The new year, though, is a particularly appropriate time to make a point of seeking out small-cap stocks (those with $300 million to $2 billion in market cap) to add to your portfolio,” Brumley added. “As a group, these companies are relatively undervalued compared with their large-cap counterparts, and the stage may be set for a renewal of the market leadership that small caps are known for.”
One thing to note is to prepare for the volatility when small cap equities perform well—it’s not always a smooth ride to gains.
“If they perform better, then what’s the catch? Well, volatility is one drawback,” Brumley said. “The trading crowd that dabbles in smaller stocks is generally smaller in numbers, and they seem a little more trigger-happy when it comes to buying and selling.”
For investors looking for continued upside in large cap equities over small caps, the Direxion Russell Large Over Small Cap ETF (NYSEArca: RWLS) offers them the ability to benefit not only from large cap equities potentially performing well, but from their outperformance compared to their small cap brethren.
- The Index measures the performance of a portfolio that has 150% long exposure to the Russell 2000® Index (the “Long Component”) and 50% short exposure to the Russell 1000® Index (the “Short Component”).
- On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value.
- In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a small-capitalization over large-capitalization investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component. One cannot directly invest in an index.
For more relative market trends, visit our Relative Value Channel.