Small caps continue to outperform, luring in more
players - or are they just pumping up the market?
Small-cap strategies, which have become a
mainstream hedge fund play, have been outperforming their
large-cap cousins for six years now. And while they had a brief
setback during May, June and July, the strategy is back on
track. A composite of small-cap hedge funds compiled by
Absolute Return was up 1.24% in September, for a year-to-date
return of 8.45%. Hedge funds big and small are continuing to
pour money into the sector.
Managers like smaller names because of their volatility,
undercoverage and easily exploitable inefficiencies - which
makes them good activist plays, turnaround candidates or
shorts. A recent Goldman Sachs survey found that roughly 46% of
hedge fund equity assets were invested in stocks with up to a
$5 billion market cap at the end of the second quarter, up