7
2
3
6
5
8
1
4

Opus News & Insights

Review of U.S. Small Caps - January 2018
Monday, February 5, 2018

Key Points
  • The market is off to its strongest start since 1989 as January picked up right where 2017 left off. U.S. small caps continued to march forward, returning 2.6%. This month, the market's performance was shaped by $50B in ETF flows, increased volatility, rising interest rates and a weakening U.S. dollar.For over 400 days in a row, the S&P 500 has closed within 5% of all-time highs,breaking the previous record of 394, which was set in the mid-1990s.
  • Last year's key themes continued to lead the market in January as large outperformed small and growth beat value. Though a strong absolute return to start the month, U.S. small caps' 2.6% return could not keep pace with its larger brethren, which returned 5.7%. After a dominating performance last year, Growth, which outperformed Value by 14.4%, continued its market leadership, besting Value by 2.7%.
  • With analysts updating estimates to reflect tax-reform, growth expectations have begun to rise, leading to decreasing valuations within small caps. Even with this, small caps trade at a 12% premium to large caps, which is relatively high compared to the historical average of 5%. With weaker relative performance and strong revisions, the Russell 2000 Value Index (R2KV) now trades at a forward P/E of 17.8x, well below the level seen in December of 18.8x. On the other hand, the Russell 2000 Growth Index (R2KG), who has seen significant outperformance against the R2KV, saw its P/E increase from 23.5x to 23.7x since the end of the year.
  • The performance discrepancy between Growth and Value was driven by two factors: increasing interest rates creating a bond-proxy sell off and increased speculation of M&A within biotechs, driving the Health Care return. Interest rates are rising based on better economic growth and higher inflation, which ultimately hurt those sectors that benefit from lower rates, Utilities, REITs, and Staples, all of which are overweights in Value compared to Growth. Furthermore, Health Care, a significant weighting in Growth relative to Value, returned almost 10%, fueled by biotech returns. Energy and metals & miners also proved victorious in January as the reflation trade started to gain momentum.
  • When interest rates rise, companies with lower leverage typically outperform, which was the case during January. With biotechs, Energy, and metals & miners performing well this month, non-earners were the big winner. Once again, valuation factors did not work. Dividend yield was out of favor this month and has been for quite some time. The market also favored companies with higher short interest.
  • With rising rates and increased volatility, active managers performed well in January. Managers tend to benefit from higher weights as the group is underweight bond-proxies, i.e., Utilities, REITs, and Staples, all of which, underperformed during the month. For the month, 44.6% of small cap core managers outperformed their relative benchmarks, while Value and Growth managers fared better with 62.4% and 64.1% outperforming, respectively. For the last twelve months, figures are slightly below January's results as 19.4% of small cap core managers outperformed and 54.1% and 47.5% of Value and Growth managers bested the benchmark, respectively.
DOWNLOAD FULL PDF



 
 

Blog Categories

  • Opus Insights
    • 08/06/2018 - Review of U.S. Small Caps - Ju
    • 08/03/2018 - Small Cap Value Plus turns 5
    • 07/31/2018 - Factor-Based Investing - Missi
    • 07/31/2018 - How Much is Your Mutual Fund C
    • 07/26/2018 - The Big Short (Interest)
    • 07/04/2018 - Review of U.S. Small Caps - Ju
    • 06/05/2018 - Review of U.S. Small Caps - Ma
    • 05/24/2018 - Opus - Simply Active
    • 05/11/2018 - Review of U.S. Small Caps - Ap
    • 04/03/2018 - Review of U.S. Small Caps - Ma
    • 03/06/2018 - Review of Small Caps - Februar
    • 03/01/2018 - Capcom, Co. Ltd. Proving My Pa
    • 02/23/2018 - Opus Capital’s Small Cap Value
    • 02/05/2018 - Review of U.S. Small Caps - Ja
    • 01/24/2018 - Nat Stewart Featured on Seekin
    • 01/03/2018 - Review of U.S. Small Caps - De
    • 12/06/2017 - Review of U.S. Small Caps - No
    • 11/27/2017 - RCI Hospitality Holdings, Inc.
    • 11/07/2017 - Review of U.S. Small Caps - Oc
    • 10/25/2017 - KAR Auction Services - Wholesa
    • 10/06/2017 - Review of U.S. Small Caps - Se
    • 09/28/2017 - Westlake Chemical Partners - E
    • 09/21/2017 - Review of U.S. Small Caps - Au
    • 09/19/2017 - Four Weird Tweaks That Confuse
    • 09/13/2017 - Opus Capital Management's Micr
    • 09/08/2017 - Opus Capital’s Small Cap Value
    • 09/08/2017 - Opus Capital Management Named
    • 08/11/2017 - If I Did It: What Collectors U
    • 08/08/2017 - Review of U.S. Small Caps - Ju
    • 07/10/2017 - Review of U.S. Small Caps - Ju
    • 07/06/2017 - Dividend Payer vs. Non Payer R
    • 06/15/2017 - Review of U.S. Small Caps - Ma
    • 06/13/2017 - Active Investing Is Not Dead,
    • 05/23/2017 - Opus Capital’s Small Cap Value
    • 05/18/2017 - Opus Capital Recognized as Top
    • 05/09/2017 - Review of U.S. Small Caps - Ap
    • 05/05/2017 - A Distribution Growth Juggerna
    • 05/05/2017 - Mexican Airports? Surely You C
    • 05/05/2017 - Opus Capital Mgmt. Launches In
    • 04/19/2017 - Interview with Adam Eagleston
    • 04/12/2017 - MicroCap Value Strategy Using
    • 04/10/2017 - Review of U.S. Small Caps - Ma
    • 04/07/2017 - Dividend Payer vs. Non Payer R
    • 04/07/2017 - Monroe Capital Is Ripe For A V
    • 04/03/2017 - Squeal Like a Pig? Not With WH
    • 03/24/2017 - ​Invest Like Zuckerberg, Not t
    • 03/03/2017 - Review of U.S. Small Caps – Fe
    • 03/01/2017 - Opus Capital Recognized as Top
    • 02/13/2017 - Review of U.S. Small Caps - Ja
    • 01/26/2017 - U.S. Microcaps Outperform in 2
    • 01/13/2017 - Small Caps Go Crazy in 2016
    • 01/12/2017 - Small Cap Rally Continues, Boo
    • 01/12/2017 - The Night is Always Darkest Be
    • 01/06/2017 - Review of U.S. Small Caps – De
    • 12/06/2016 - Review of U.S. Small Cap Value
    • 12/06/2016 - Oil Appreciation Day
    • 11/30/2016 - Opus Names Debra Gordon as Dir
    • 11/23/2016 - Opus Capital Recognized as Top
    • 11/22/2016 - Opus Capital: A 20-Year Retro
    • 11/11/2016 - The “Basket of Deplorables” Ra
    • 11/09/2016 - 2016 Election - The Morning Af
    • 11/08/2016 - Presidential Election 2016
    • 11/06/2016 - WSJ - "Junk Stocks" Strut, but
    • 11/04/2016 - Review of US Small Caps - Octo
    • 10/14/2016 - Living in a Material World
    • 10/13/2016 - Profit Owed to Leverage
    • 10/11/2016 - Observations on Poor Energy Co
    • 10/11/2016 - Independent Thinking Garners a
    • 10/05/2016 - Review of U.S. Small Caps - Se
    • 09/27/2016 - Review of U.S. Small Caps – Au
    • 09/19/2016 - Income Needs Have Insurers Loo
    • 09/01/2016 - Low Vol and Dividends a Crowde
    • 08/31/2016 - All Animals Are Equal, but Som
    • 08/26/2016 - Black Hole
    • 08/15/2016 - Review of U.S. Small Caps
    • 08/05/2016 - Robert Half International - a
    • 07/29/2016 - BGCP: Severe Undervaluation P
    • 07/13/2016 - Can Utilities Keep Going at Ma
    • 07/08/2016 - Review of US Small Caps
    • 06/30/2016 - Interest-ing Decisions Ahead f
    • 06/27/2016 - Negative Reality Bites
    • 06/04/2016 - Mallrats
    • 05/19/2016 - The Big Short (Interest)
    • 05/19/2016 - Energy and Oil Price Volatilit
    • 08/27/2015 - CHINESE CHECKERS - Volatility
    • 06/10/2015 - ​Black Gold, Texas Tea
    • 03/19/2015 - Don't "Yada Yada" Foreign Stoc
    • 02/17/2015 - Wealth Management Guide 2015
    • 02/16/2015 - 'Tis Better to Give and to Rec
    • 02/12/2015 - Navigating the Social Security
         
MEET OUR TEAM

B. Rapking - Operations Associate
  Brad J. Rapking
Equity Trader and Associate Research Analyst
View Bio
Len A. Haussler, CFA, CPA
  Len A. Haussler, CFA, CPA
Founder
and Portfolio Manager

View Bio
Joseph P. Condren, CFA
  Joseph P. Condren, CFA
Principal, COO and CCO

View Bio
Adam T. Eagleston, CFA
  Adam T. Eagleston, CFA
Principal
and Portfolio Manager

View Bio
Nathan A. Bishop, CFA
  Nathan A. Bishop, CFA
Principal
and Portfolio Manager

View Bio
Kevin P. Whelan, CFA
  Kevin P. Whelan, CFA
Principal
and Portfolio Manager

View Bio
Alex Moore
  Alex Moore
Associate Wealth Advisor

View Bio
David W. Wagner III, CFA
  David W. Wagner III, CFA
Research Analyst


View Bio
Nathan M. Bailey, CFA, CFP®
  Nathan M. Bailey, CFA, CFP®
Associate Portfolio Manager

View Bio

  Jakki L. Haussler, Esq., CPA
Founder and CEO

View Bio
  CONTACT INFO

221 E. 4th Street, Suite 2700
Cincinnati, OH 45202
Office: (513) 621-6787
  CONNECT WITH US

        
         
Copyright © 2017. Opus Capital Management. All Rights Reserved