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Don't count out small cap funds
By ASSOCIATED PRESS
Published November 12, 2006
NEW YORK - Though it might appear to run counter to logic in a place that can be as bruising and unforgiving as Wall Street, bigger has not always been better. But with large capitalization stocks emerging from a five-year slump, such bumper-sticker logic might be in order for many mutual fund investors. While many analysts see a move toward large cap funds, fewer appear to be suggesting investors give up on small cap funds. Brian Gendreau, investment strategist at ING Investment Management, expects large cap funds to outperform, but he doesn't expect small caps to necessarily decline in value. Nonetheless, the $10-billion in funds affected by ING's allocation decisions have in recent months shifted to become overweight in large cap stocks and underweight in small-caps. "The reason we're overweight in large caps is just because after 17 quarters of double-digit earnings growth, they've gotten cheaper than they were," Gendreau said. Todd Trubey, an analyst at Morningstar, which rates mutual funds, sees the split as less of a debate between large versus small than between value and growth. He notes the top performing fund categories this year have been large cap value funds followed by small cap value funds. With small cap value funds, about half the gains for the year have come in the past three months, while for small growth funds nearly all the gains have occurred over that time span. Through the end of last week, small cap value funds are up 10.9 percent for the year to date, while small cap growth funds are up 5.8 percent, Trubey said. "What everyone seems to be arriving at now is that large caps could outperform," he said, noting that such an occurrence wouldn't necessarily sound the death knell for small caps. "They have the potential just to lag. It's just a prognostication," he said of the calls for a further resurgence in large caps. "The real thing is trying to figure out whether a small cap fund is still a reasonable, long-term investment. Just because an area has outperformed over a multiyear period doesn't mean it's become overvalued."
[Last modified November 11, 2006, 23:45:22]
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