This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Big-Caps, Big Questions

Bigger hasn't been better for stocks this year, as the widely predicted rotation from small-cap to large-cap leadership has failed to materialize.

But analysts say investors will only suffer greater frustration if they purge their large-cap holdings and abandon the concept of asset allocation.

There is a firmly held belief among analysts that small- and mid-cap stocks, or companies with market capitalizations below $10 billion, outperform large-caps in the early stages of an economic recovery due to their flexibility. In the case of the most recent recovery, that view has borne out as small-cap returns have walloped those of the heavyweights . The iShares S&P SmallCap 600 Index (IJR) exchange-traded fund rose 38.5% in 2003, more than 10 percentage points better than the SPDR (SPY) ETF, which tracks 500 of the largest companies in the U.S.

Large-caps, which have market values north of $10 billion, traditionally take the leadership baton a little later in the recovery cycle because it takes more time for the big guys to wake up and hire additional workers, restock inventories and crank up production to meet consumer demand.

But those sleeping giants seem to have hit the snooze button once too often. Year to date, large-cap growth funds have returned a negative 3.48%, making them the fourth worst-performing fund category and more than doubling the losses of the average small-cap growth fund. And large-cap blend and value stocks have also spent the year trailing their tiny counterparts when they should have outpaced them by now, especially as the second year of the recovery comes to a close.

The inability of large-cap stocks to play catch-up is causing angst among a growing number of investors. But financial advisers say stay patient and don't cash in those blue chips.

"Large-cap growth stocks have been hurting for so long, people are asking why they need them anymore," says Susan Stiles, financial adviser at Minnesota-based Stiles Financial Services. "They want to sell them so they can increase their small-cap exposure, but that defeats the purpose of asset allocation."

1 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs