NEW YORK (TheStreet) -- After getting crushed by large-cap stocks last year, small-caps are set to perform better in 2015, but not by that much, one strategist says.
Steven DeSanctis, head of small-cap strategy at Bank of America/Merrill Lynch, is forecasting a "marginally better year" for small-caps, with 5% growth.
The Russell 2000 index, which tracks small-cap stocks, returned 3.5% in 2014, failing to come close to the broad S&P 500's impressive 11% rise. So far in 2015, both indices are up 1.7%.
"For the large-cap market, their valuations rose as well, so our view is that large-caps aren't nearly as attractive," DeSanctis said. "The big backdrop is around earnings growth and I think you'll get much better earnings growth down in small and mid-cap stocks as the economy in the U.S. holds up."
He says small-cap earnings tend to mirror gross domestic product. After strong economic growth during third quarter of 2014, the economy softened during fourth quarter and is expected to slow even further, as colder temperatures stifle consumer spending. While this worries DeSanctis, he's still bullish on small-cap earnings.
"I think we see a decent year for economic growth, as we are forecasting GDP growth of 3%-3.2%," he said. "With that, I think small- cap earnings growth will be 10% or low double-digits," he says.
His favorite sectors include cyclical ones such as technology, thanks to lower valuations, expectations of higher capital expenditures and greater emphasis on returning cash to shareholders.
Looking ahead, he said he doesn't like sectors such as consumer discretionary, consumer staples, materials and utilities.