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The Year Small-Caps and Micro-Caps Have Led the Way

In a stellar year for stocks, the little guys have finally seen some progress, Jonathan Heller says.

TheStreet’s Jonathan Heller is taking an early look at 2021 in total, and what he sees points to a big win for smaller stocks.

So far, “2021 has been quite a year for the markets,” Heller said in Real Money recently. “Despite the lingering effects of the pandemic, supply shortages and disruptions, rising inflation, labor shortages, and other factors, markets have had a great year.”

The corollary to that statement is if you flood the economy with liquidity through a variety of means, including artificially low interest rates, trillions in stimulus, extended unemployment benefits, and other methods, interesting things will happen.

“Those include rising markets, and inflation, in this case, as well as several other unintended consequences,” Heller noted. “Still, 2021 has been the year of small value, so far, anyway.”

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Heller makes several points about stocks – and stock indexes – this year:

  • "Within large-caps, while growth, as measured by the Russell 1000 Growth Index (up 28.85%), has handily outperformed value (Russell 1000 Value Index, up 21.58%), it's been a much different story in Smallville.
  • Within small-caps, the Russell 2000 Value Index (up 30.8%) has creamed Russell 2000 Growth (up 9.44%), by a whopping 2,136 basis points.
  • Within micro-caps, which I find the most interesting slice of the market, the Russell Microcap Value Index (up 38.62%) is ahead of the Russell Microcap Growth Index (up 11.7%) by 2,692 bps."

“Of course, 11 months of outperformance by small and micro-cap value does not tell the whole story,” Heller said. “Value has quite a way to go to get on equal footing with growth, especially with large-caps.”

While a lot could still happen as 2021 comes to an end, Heller said it's been good to see small and micro-cap value close (in the case of micro-caps) or start to close the multi-year performance gap.

“The question is whether large value stocks will be able to begin doing the same,” he added. “It certainly has a long way to go, but among value investors, hope springs eternal.”

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