FT on Large Caps

On the FT today, we saw the following:

Even pessimists admit that US large-cap stocks are recuperating, with some fund managers forecasting that the S&P 500 may well gain as much as 15 per cent in 2011.

Bill Miller, the chairman and chief investment officer of Legg Mason, affirmed the sentiments of an assembly of US equity managers this month when he claimed that large caps listed in the US look “significantly undervalued”. Inexpensive valuations combined with a tepid improvement in macro-economic conditions stateside, as well as stronger corporate profits, hint that a renaissance for the US large-cap sector is likely. 

“Profit margins are at record levels and corporate balance sheets are very strong, yet stocks languish below where they were in late August of 2008 and that was hardly a bull market,” argues Mr Miller. 

“Big caps are cheap but you want to be sure to get them in the right sectors,” says Mr Wintle. He does argue, however, that the performance of large caps will be overshadowed by mid and small caps until the cyclical bull market reverses. “Mid and small caps are still leading. It’s true they look expensive, but they have higher growth rates than other areas of the market,” he concludes.

James Abate, manager of PSigma’s American Growth fund, echoes these sentiments. “We don’t expect larger companies to outperform mid and smaller ones but we expect the differential to decrease,” he says. “And a shift to defensive sectors appears premature and will be warranted only when Federal Reserve policy begins to shift to restrictive.”

Full article here:  FT Largecaps


I believe that small and mid-caps will continue to outperform (looking at all within the growth sphere) as they should benefit from the growth prospects of which we continue to see evidence.  Further, we might see emerged markets lead emerging markets as there are signs of nascent growth within the emerged markets.

The following is a chart for the last three months comparing small, mid and large-cap growth (as reflected through the Russell mid-cap growth IWP, the Russell small cap growth IWO and large cap growth S&P.

Small caps got knee-capped last week due to risk rotation and the never-ending negative Pollyanna news on the sector.  Yeah, I ate some Tums and injected more capital into the trade.