Large Cap Small Cap

In the last update, I promised to write about the disparity between large cap/small cap. For the year ended April 30, 2006, small and mid cap was the place to be as it was up more than double the large cap index. Not only was this occuring domestically but even better performance was coming from emerging markets which are even more speculative. It's not unusual for a bull market to end with the most speculative paper in the greatest demand. In the last bull run, it was the techs and dot.coms. The patterns remain so similar regardless of the times. Or in the words of Mark Twain, "history does not repeat itself but it often rhymes".

When the market sold off in early May of this year, smaller cap stocks took it much harder than larger ones. Think Newton's law. But now, a change is in place. Rallies in the market tend to reward large caps over small. Check the charts of various indices and you will note that the larger cap act much better. More to the point, the Dow Utility index is the best acting of them all.

The message from the market is that large is in, small is out. Large is safer, more liquid, more secure, pays dividends. Small is riskier, less liquid, less secure, no dividends. Although I feel that smaller companies are more dynamic and better able to adjust to changing landscapes in the business world, investors are focusing on something else. That something else is risk and valuations. And right now large caps, in particular value and yield, are where the market says we should be focusing.

It will certainly be possible to make money in small and mid cap stocks but as a group it appears that the change is underway.

To find out more about my firm's investment strategies, in particular our large cap value and large cap value high yield strategies, please visit our website at www.gellercapital.com or email me directly dgeller@gellercapital.com