Small-Cap Stocks: Where To Find Value Today
Steven DeSanctis, Head of Small Cap Strategy, BofA Merrill Lynch Global Research, discusses the cooling rally in small-cap stocks and where investors in the size segment can find the most promising opportunities.
(Taped on June 23, 2010)
Since March 2009, the smallest and least promising among small-cap stocks — which are companies with less than $2 billion in market capitalization — are the ones that have been outperforming relative to the rest of the segment. However, this rally in lower quality appears to be faltering, according to Steven DeSanctis, Head of Small Cap Strategy, BofA Merrill Lynch Global Research. In fact, he adds, "small caps have generally lagged over the last several weeks. We think this trend will continue, due to both rising volatility and widening credit spreads." While he continues to believe that small-caps can play an important role in a well-diversified portfolio, he notes that "performance is typically better over longer holding periods."
Within the small-cap universe, DeSanctis believes that larger high-quality U.S. companies offer the best investment potential. "In today's more volatile market environment," he notes, "quality and consistent earnings growers tend to lead the way." Several recent changes to his small-cap sector rankings reflect this more conservative outlook for the size segment.
As always, before you make any investment decisions, discuss them with your Financial Advisor. Every week, BofA Merrill Lynch Global Research strategists share their insights on markets and other information of value to investors. View this video commentary and read the related research.