What factors favor small caps in 2018?
There are many factors that favor small caps in 2018. One of them being the relative performance different we've seen, where large caps have actually been outperforming small caps over longer, measurable periods of time. Normally that is not the case because small caps are riskier. Investors need to be compensated for that additional risk, so look for small caps at some point to outperform large caps, just from a technical standpoint. Additionally, we know that Trumponomics more clearly favors small-cap stocks, and small-cap stocks over the short term since Trumponomics has been put in place, has been underperforming their large-cap brethren so we believe that small caps have a real chance of starting to perform much more strongly versus large caps going forward.
What are key consideration when evaluating small cap stocks?
When evaluating small cap stocks, you want to look at the same fundamentals that you look at when evaluating large cap stocks. You look for value, growth, and quality traits of stocks where our research shows, leads to out-performance over time. One thing that is important when evaluating small caps stocks is that they are less liquid, and the trading costs are higher. That's something that we always pay very close attention to when investing in the small cap space.
Views are as of Feb. 8, 2018 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. Small company stocks may be less liquid and subject to greater price volatility than large capitalization stocks. There is no guarantee that small cap stocks will outperform large cap stocks over any given time period. MDT Advisers, a Federated Advisory Company 18-73295 (2/18)