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Posted by on Sep 15, 2017 in Cornerstone Investment Partners, Featured, Small Cap Market Review

Weekly Small Cap Market Review: September 5 – September 8

Weekly Small Cap Market Review: September 5 – September 8

By Mark Spatt, CFA, Investment Analyst at Cornerstone Investment Partners, sub-advisor of the AdvisorShares Cornerstone Small Cap ETF (NYSE Arca: SCAP)

Last week, I talked about the need to compartmentalize the emotional and the evidential when investing. While still horrendous, Hurricane Irma turned out to cause less destruction in the US than feared, which has been a huge relief to me both generally and as someone who lives in Atlanta and has many friends and family based in Florida. Even though for the most part we are breathing a sigh of pained relief, there are many who have suffered greatly, and we should not forget how much damage occurred in the Caribbean, however.

It’s heartening how different corporations responded to the disaster. Airlines, after initially receiving bad press from ticket price systems that spiked to egregious levels under the surge in demand, capped flight prices for those affected, and increased capacity, including dispatching a 747, to get more people out of harm’s way. Cruise lines used their ships to deliver supplies and pick up stranded passengers. Beer and soda companies used their canning lines for drinking water. A furniture retailer is subsidizing furniture purchases for those affected in Houston and Florida. Wireless companies waived overages. A major sporting goods retailer is donating $5.5mm worth of apparel, sneakers, and money to repair fields. Banks waived ATM fees. Even a certain electric car company temporarily upgraded lower-end cars’ software to allow for full battery usage and increase driving range.

I am often a cynic, am fully aware that maximizing shareholder profit is the primary goal of most public corporations, and recognize that some of these donations/actions may designed more to create positive press/avoid negative press rather out of true altruism. But sometimes the intent is irrelevant. Many of these organizations have the infrastructure to be on the ground quickly, operate hand-in-hand with government agencies or fill the gaps when needed, and also have the ability to make people’s lives easier and safer at a bad time. And that’s all that’s important.

The small cap market, as defined by the Russell 2000 Index, was down 1.0% overall during the holiday-shortened week. Utilities (+0.7%), Health Care (+0.3%), and Real Estate (+0.1%) were the strongest sectors in the Index, as treasury yields hit the lowest level since mid-November and biotech continued its recent run. Telecommunications Services (-5.1%), Financials (-3.5%), and Information Technology (-1.5%) were the weakest, given continued competition among the large providers, the impact of lower yields on potential NIMs and storm effects on P&C insurers and reinsurers, and semiconductor weakness.

On a style basis, small caps under performed large caps, as the Russell 1000 Index was down 0.6%. Among small caps, growth outperformed value, with the Russell 2000 Growth Index returning around 60 basis points more than the Russell 2000 Value Index for the week.


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