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U.S. Smallcap in Demand

by: Gregory Skidmore September 05, 2008 | about stocks: FDM / SPY / VB    

Gregory Skidmore

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According to Morningstar, Q2 inflows into US smallcap equity hedge funds were $757 million. This was a 523.7% increase from Q1 and may help to explain why small (VB) and micro (FDM) caps have outperformed the S&P 500 (SPY) so far this year.  

A Pensions & Investments article entitled “Managers Hungry for Cash Infusion” (Aug 18th) cites that many managers are re-opening their funds to new investors for the first time in years. While most hedge fund categories are experiencing negative inflows, US smallcap is in demand and seems to be viewed as an opportunity by fund-of-funds, pensions, and endowments. The implication is that US smallcap hedge funds may have begun or may begin to put this fresh capital to work. 

While I am not an advocate of market timing, I am an advocate of diverse institutional style asset allocation. Investors who are appropriately allocated to smallcap in stocks,  ETFs like (VB) or mutual funds should consider this most recent move by institutions as a positive one. 

Disclosure: The author’s firm has positions in SPY, FDM, VBR.

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This article has 4 comments:

  •  
    Sep 05 01:11 AM
    Puh-lease. If you must gamble in this treacherous market, then by all means small caps are the way to go. They have less to fall when they go to zero. But really, what is the purpose of this story? Watching inflows as you mentioned has been a disaster in the past year. Remember, we are in a credit crisis, small cap and small caps for a reason and when the funding really dries up over the next few years, short-to-zero plays using a dart board with small caps pinned up with be a much better trade than the one described here.
    Reply
  •  
    Sep 05 01:12 AM
    Edit - small caps ARE small caps for a reason,

    when the funding really dries up over the next few MONTHS.
    Reply
  •  
    Sep 05 01:27 AM
    By they way, what are your favorite picks. I am a gambler.
    Reply
  •  
    Sep 05 10:07 AM
    There's an event at the Chumash casino this weekend. At least I'll have fun while throwing my money away.
    Reply
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