The longer view is even more impressive: Since March 2000 (the official start of this rally, when small caps bottomed out relative to their large-cap peers), the Russell 2000 index has posted an average annual return of 7.3%, vs. -0.
6% for the S P 500. Why? Analysts point to the superior earnings growth of the smaller companies and to their allure as takeover targets.
Yet even as small-cap fund managers count their gains, they are voicing cautions. Observes John Montgomery of Bridgeway Capital Management, where he co-manages ten funds with assets totaling $2.7 billion: "As a group, value in small caps is much harder to come by.
" Take those as words from one who knows a good value. Among the ten money managers polled by FSB at this time last year, Montgomery stole the show: His five stock picks rose, on average, 103% over the 12 months, soundly defeating the Russell 2000. (In the aggregate, the 50 companies our managers recommended last year returned 46.
7%.)
But the success of small-cap mutual funds has a price. Since the beginning of 2005, more than 30 such funds have closed their doors to new investors, bringing the total number of shuttered small-cap offerings to 103 out of a total of 597 funds, according to Morningstar.
(All the funds listed on page 47 are open to new investors.) And small-cap stocks are becoming expensive - the average price/earnings ratio for the Russell 2000 index is about 28, compared with 18 for the S P 500.
Take heart, though.
The fund managers featured here may see fewer great investing opportunities, but they say they're still finding winners.
This is an excerpt from a FSB magazine feature. To read the full story, "Little Stocks That Rock," .
For a full list of the 50 small-cap stocks to watch, .
100 fastest-growing tech companies. .
To write a note to the editor about this article, .
News RSS