Move over tiny houses, Wall Street investors are now tuning into tiny stocks.
Indeed, the small-is-better trend has made its way to Wall Street. Small stocks are putting up bigger gains than their large-company counterparts.
In the clearest sign of the shift in investors’ affections, the small-company Russell 2000 is the first major U.S. stock index to break out to a record high following the stock market’s first 10% correction in two years in February. On Thursday, the small-fry index gained 0.55%, while the Dow, S&P 500 and Nasdaq all finished with losses.
The average market value of stocks in the Russell 2000 is $2.5 billion, according to index provider FTSE Russell. Compare that to Apple, the most valuable stock in the large-company S&P 500 index that is closing in on a market value of $1 trillion.
Top holdings in the small-cap index include biotech drug maker Nektar Therapeutics and online food delivery service GrubHub.
Alec Young, managing director of global markets research at FTSE Russell, cites a few factors driving the better performance of small stocks. One benefit is small companies get the bulk of their revenue from within the U.S.
That shields them from headwinds faced by big companies in the S&P 500, which get nearly half of sales from overseas.
Small stocks are less impacted by a stronger dollar, which makes U.S. goods sold abroad more expensive. They also suffer less turbulence due to geopolitical and trade fears.
Source: USA TODAY