Weekly Small Cap Market Review: May 29 – June 2
By Mark Spatt, CFA, Investment Analyst at Cornerstone Investment Partners, sub-advisor of the AdvisorShares Cornerstone Small Cap ETF (NYSE Arca: SCAP)
Well, the rest vs. rust debate was not solved, given how winded LeBron looked in the second half of Game 2, but the Warriors have looked great. That being said, the Nashville Predators have made it a series behind a hometown crowd (and one of the weakest national anthems since Roseanne), so with the Cavs returning to Cleveland this week, perhaps they can do the same. In other sports news, we learned Phil Mickelson has withdrawn from the U.S. Open to attend his daughter’s high school graduation. Yes, yes, it’s the only major he hasn’t won, and yes, yes, at 46, he’s no spring chicken, but there will be more tournaments, and it’s his daughter’s graduation. He believes it’s the right thing to do.
“It’s the right thing to do.” That’s a key message when managing money, whether for clients or for yourself. There’s a common saying, often repeated by Warren Buffett, that “you shouldn’t do something you would not want written up on the front page of the newspaper.” It’s an imperfect heuristic, since least-bad choices (i.e. a round of layoffs during a recession) are often necessary. But at the end of the day, until the machines completely take over, we are a people business. And in a people business, your integrity is everything. Companies in which we invest are no different. Whether we’re talking about a consulting firm (majority of value is people-driven) or an oil and gas major (majority of value is asset-driven), integrity of management is a key to long-term success.
The small cap market, as defined by the Russell 2000 Index, was up 1.7% overall during the week. The market demonstrated mixed sentiment during the short week, but experienced significant upward pressure. Defensive rate-driven plays like Telecom, Utilities, and Financials were impacted by flattening treasury yields, as the 10-year is at post-election lows, but the short-end of the curve remains relatively strong in the face of a likely Fed hike next week. At the same time, improving fundamentals have pushed Health Care, Industrials and IT up as well. Oil was weak again, down 4%, nudging Energy down some more.
Health Care (+2.9%, with broad-based support across biotech and medical specialties), Industrials (+2.6%, with infrastructure, housing, and A&D driving), and Telecommunications Services (+2.4%) were the strongest sectors in the Index. Energy (-3.2%, as investors continued to drive down oil prices) and Materials (+0.2%, as chemicals offset metals) were the weakest. In total, small caps outperformed large caps as the Russell 2000 Index returned around 65 basis points more than the Russell 1000 Index (up 1.1%). Among small caps, growth outperformed value by approximately 100 basis points.
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.