This Day On The Street
Continue to site
ADVERTISEMENT
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

Small to Large: Too Much of a Good Thing May Hit Your Portfolio

If they end up being accurate once again in today's market, the implications are significant. Given the 15-year run in small-caps, many investors likely have an outsized weighting to the asset class in their portfolios due to price appreciation alone. Additionally, as most investors suffer from recency bias -- a tendency to chase recent performance -- any new purchases made over the past few years were likely to favor small-caps.

What can an investor do to prepare for the likely reversal in the years to come?

First, a simple rebalancing out of small-caps and into large-caps would bring an investor's portfolio back in line with their target allocations. A more active investor may consider going beyond rebalancing by reducing their target allocation to small-caps until the valuation gap is closed.

A final re-positioning for aggressive long-term investors to consider would be to reduce their exposure to U.S. small-cap stocks and increase their exposure to the "small-caps of the world," emerging market equities through the iShares MSCI Emerging Markets Index (EEM). According to Grantham, emerging-market stocks are projected to deliver a real return of 3.5% per year over the next seven years, or 8.4% higher than their projected return for U.S. small-caps.

At the time of publication the author had no position in any of the stocks mentioned.

Must Read: Why Equity Confidence Remains Despite the January Slide

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.52 0.87%
FB $87.40 1.90%
GOOG $524.21 0.71%
YHOO $39.47 0.46%
TSLA $270.05 0.67%

Markets

DOW 17,790.24 +170.73 0.97%
S&P 500 2,072.55 +9.44 0.46%
NASDAQ 5,028.3450 +41.4780 0.83%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs