Weekly Small Cap Market Review: May 15 – May 19
By Mark Spatt, CFA, Investment Analyst at Cornerstone Investment Partners, sub-advisor of the AdvisorShares Cornerstone Small Cap ETF (NYSE Arca: SCAP)
Sports in Atlanta are a strange beast. I was born and raised in the New York metro area, where college sports are usually a far cry from their professional versions, except for, of course, the UConn men and women’s basketball teams. Tickets for my hometown Yankees (27 championships!), Giants (football as it’s meant to be played), and Knicks (I know, but it’s a labor of love) are expensive and stadiums are always packed, regardless of the quality of the team.
In the South, it’s a different story. College rules, with season tickets for SEC football teams as coveted as the Maltese Falcon. Well-to-do Georgia fans own apartments in Athens to use them seven Saturdays a year. The spring scrimmage sold out a 93,000 seat stadium in 2016. In contrast, the Braves left half of Turner Field empty on average last year and I’ve historically seen more Knicks fans than Hawks fans at Phillips Arena.
But this year, Falcons owner Arthur Blank launched an MLS expansion team, the Atlanta United FC. It’s an awful name, and there is no college football during the summer with which to compete, but the team has enthralled the city and opened a new demographic market. They sold over 30,000 season tickets and each of the first four home games (currently held at GA Tech’s football stadium while the oft-delayed Mercedes-Benz Stadium gets finished) have been packed to the rafters.
What does this have to do with companies? Look at your marketplace and find what isn’t being served. Atlanta’s Hispanic population doubled between 2000 and 2010, and is much younger than the city as a whole. In the summer, when MLS plays the bulk of its season, the only local competition is baseball. Games are less than two hours, and have only one break from the action. And Atlanta’s highly transient population doesn’t have to give up hometown teams to support one here (good luck finding a Mets fan to cheer on the Braves.) In my opinion, it’s key for companies to continually address open market opportunities to drive extra-market growth and stand out in a crowded field.
The small cap market, as defined by the Russell 2000 Index, was down 1.0% overall during the week. Markets were generally lower during the week, with some positives (inflation stabilizing, jobless claims down) and negatives (retail weakness). In Washington, President Trump’s firing of FBI director James Comey on Tuesday afternoon caught people by surprise on both sides of the aisle, which may add some uncertainty to the broader political and legislative environment. However, volatility remains low, as sentiment is positive and quarterly earnings growth (at least outside of the dismal retail sector) have been strong. IT (+1.1%, semiconductors and equipment), Energy (+0.4%, as oil prices were up), and Health Care (+0.2%) were the strongest sectors in the Index. Financials (-2.3%, from banks) and Industrials (-2.3%) were the weakest. In total, small caps underperformed large caps, as the Russell 2000 Index returned around 65 basis points less than the Russell 1000 Index (down 0.3%). Among small caps, growth continues to outperform, with the Russell 2000 Growth Index beating the Russell 2000 Value Index by approximately 100 basis points.
Last week, we participated in AdvisorShares’ AlphaCall. Along with our CIO John Campbell, we discussed the state of the small cap market and some names in the portfolio we find particularly interesting. If you didn’t listen live, it should be posted in the coming weeks.
Source: Bloomberg, Factset, FTSE Russell