NEW YORK (TheStreet) -- Small-cap managers are calling a stock-picker's market after a strong run last year triggers valuation concerns.
But opportunities abound for investors willing to do their research, with financials, biotechs, tech and energy stocks cited as sectors thick with good stock picks.
The Russell 2000 index gained 38.8% in 2013 to outpace the S&P 500's 26% gain. As a result, valuations among large-cap stocks are generally more attractive, though managers say the exposure of small caps to the recovering domestic economy goes some way to redressing the balance.
The biotech sector is a favorite of many managers, with many small-cap biotechs seen as more innovative than their larger peers. This week, Illumina (ILMN) announced that the human genome could be mapped for just $1,000, a development that helps scientists understand underlying causes of traits and medical conditions. Russell Investment's Jon Eiggins noted the innovation in small-cap biotechs has seen a trend in which large companies wait for smaller rivals to make discoveries then buy them, magnifying share price gains.
Intercept Pharma (ICPT) illustrated the benefits of backing innovative small caps; its drug to treat liver disease was found effective in a trial and appears set to be the first approved treatment for the chronic condition. Shares jumped from $72.39 to $252.63 this month on the news.
Artisan Small Cap Fund Associate Portfolio Manager Jason White pointed to Isis Pharmaceucticals (ISIS) as another promising biotech, noting the company has a variety of drugs in the pipeline and partnerships with big companies like GlaxoSmithKline, Merck and Roche.