Rising Rates Won’t Deter Small-Cap Success Says Royce Funds Manager

The market’s minnows have outperformed its whales so far in 2015. Steve Lipper, portfolio manager for the Royce Funds, said small-cap stocks could continue to beat their larger counterparts, even if interest rates finally turn higher. 'You tend to have more international exposure in the multinationals than you do in the small-cap arena and that’s favorable,' said Lipper. 'Some of the smaller healthcare and biotech names have benefitted from acquisition. And you have more energy in the large cap-area so all-in-all you have a much more favorable environment.' The small-cap Russell 2000 index has returned over 4.7% so far in 2015, far outperforming the mega-cap S&P 500’s year-to-date gain of 1.7%. As for the best small-cap sectors so far in 2015, Lipper said that companies that are not earning money – like many biotechs – are having the best performances year-to-date. He added that investors should be increasingly wary of such over-achievers.