Weekly Small Cap Market Review: January 16 – January 19
By Mark Spatt, CFA, Investment Analyst at Cornerstone Investment Partners, sub-advisor of the AdvisorShares Cornerstone Small Cap ETF (NYSE Arca: SCAP)
I recently read a book, “The Making of a Chef,” by a food writer (Michael Ruhlman) who spent a year in the mid-90s studying at the Culinary Institute of America, one of the country’s leading culinary schools. For anyone who has ever given a thought to culinary school or just wondered how different restaurant cooking is from home kitchens, it is a fascinating read, if at times a bit dated. A key takeaway is the level of discipline and repetition needed to cook at that level. Chopping carrots into a brunoise every day for weeks seems like a thankless task, but execution is everything and making those basic skills second nature, it allows for the ability to think more creatively and identify how to fix errors.
Investing requires a similar level of discipline as well. Only by reading and thinking consistently can we then cut through the noise and identify when things seem different. It also has its own knife skills that require constant repetition, such as financial statement analysis. By internalizing those skills, we can instead focus our efforts on application to better understand what is happening at our companies, and how the rest of the market is reacting to it. Without that discipline and skill development, we can fall into the trap of complacency and increase risks for clients.
Small caps were up for the week, as the positive momentum in the market year-to-date continued. Outside of Energy, which was down on a slight pull-back in commodity prices after a quick run the past few weeks, there was little differentiation in the market. Earnings season for large cap companies has begun, but we will see small cap earnings start to trickle in and then peak during February and March. Generally, yield has been a negative, with Utilities continuing their slide.
The small cap market, as defined by the Russell 2000 Index, was up 0.4% overall during the week. Consumer Staples (+1.5%), Information Technology (+0.9%), and Real Estate (+0.7%) were relative outperformers in the Index. Energy (-3.2%), Telecommunication Services (-1.7%), and Materials (-0.3%) were the weakest. On a style basis, small caps underperformed large caps, as the Russell 1000 Index was up 0.9%. Among small caps, growth outperformed value, as the Russell 2000 Growth Index returned approximately 40bp more than the Russell 2000 Value Index.
The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.