Small is Beautiful

Is it a small world after all?

Small stocks have been on a tear. While the S&P 500 was up 15% last year, the Small Cap index was up 20%. Small tech companies were up 37%, while large tech companies were up only 11%. It’s the same overseas: small European companies were up 17%, while large Euro companies were up 6%. Why?

Part of the reason has to do with finance. Small companies depend more on loans than large companies. When the banks had to cut back, loans to smaller companies suffered. As the world pulled back from the brink, a lot of small companies got their loans and their mojo back. As financing became available, they could grow again. So it makes sense for small companies to outperform big companies after a financial crisis.

Will this continue going forward? It’s unclear. One element that does favor small companies is the job market. With unemployment so high, it’s easier to find good people to fill needed slots. In the global war for talent, it’s not necessary to have a big-budget recruiting effort to attract qualified candidates. That’s one hidden blessing of higher unemployment.

Employment is one reason why small stocks may outperform large stocks in 2011. But hold onto your hat—it’s likely to be a bumpy ride.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-11T14:28:18+00:00 January 8th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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