subject: Sizing Up the Markets [print this page] Author: Kevin Matras Author: Kevin Matras
As I was reviewing last year's market performance, I ran some tests on which Market Caps performed the best. To no surprise, Small Caps performed the best with a 50% compounded annual growth. Mid Caps came in second with a 42.5% return, and in third was Large Caps at 35.9%. (The S&P came in at 23.6%). Does this mean you don't need to worry about Mid Caps and Large Caps though? Not quite. But I put it to the test to find out. I created three screens: one with Market Caps less than $800 Million (Small Caps), one with Market Caps between $800 Million and $3.5 Billion (Mid Caps) and one with Market Caps greater than $3.5 Billion (Large Caps). Each screen also consisted of only stocks trading over $5 with an average daily trading volume of over 100,000 shares. I then backtested these screens using a one-week holding period for each year from 2009 going all the way back to 2002. (8 years.) Let's start from 2002 and work our way to the present: * In 2002, it was a lousy market with the S&P down -23.7%. And all capitalizations did poorly as well with Large Caps down -20.7, Mids down -21.4% and Smalls down -24.9. * 2003 was a different story with the S&P up 28.9%. Smalls performed spectacularly with an 80.9% return. Mids were up 46.6%. And Large Caps were up 38.7%. * 2004 was another year of great performance. The S&P was up 38.8%. Small Caps were up 109.9%. Mids were up 68.1%. And Large Caps were up 57.2%. * 2005 saw the edge go to the Large Caps this time at 12.7%. Mids were up 8.8%. And Smalls were up 3.3%, actually underperforming the market, which came in at 4.5%. True, the difference between a 9-point Large Cap outperformance isnt quite the same as the previous years 52-point Small Cap outperformance. But it is worth noting. * In 2006, Large Caps were the winner again, albeit by a slim margin. Large Caps were up 18.2%, Mids advanced 17.8% and Smalls increased 16.2%. * And then again in 2007 Large Caps came in first at 9.9%. Mids were up 1.7%. And Smalls actually showed a loss of -6.5%. (Both Mids and Smalls underperformed the market, which came in at 6.1%. And yes, it was surprising to see Smalls actually close down for the year.) As you know, * 2008 was a total disaster all the way around. The S&P was down -39.4%. Large Caps dropped -44.3%. Smalls were down -43.7%. And Mids were down -41.5%. There was no place to hide. * 2009 saw all caps gain nicely and beat the market. The S&P was up 23.6%. Smalls were up 50%. Mids were up 42.5%. And Large Caps were up 35.9%. Small Caps were the winner, but I doubt anybody would have been upset with a 42%+ performance in Mid Caps and a 36% gain in Large Caps. Over the last 8 years, Small Caps showed an average annual return of 23.15%. Mid Caps gained 15.33%. And Large Caps gained 13.45%. And they all beat the market, which came in at an average of 6.83% over the last 8 years. While the most significant outperformance was seen by Small Caps, the Mids and Larges also performed well and beat the market - and often times with less volatility or drawdowns. So what do all of these statistics mean knowing that some Market Caps are better than others in different years? It means, you should have a mix of everything. And by having exposure in all the Caps, you can make sure you'll participate in the winningest group no matter what. Here are 6 stocks this week, two from each Market Cap class. And they all have a Zacks #1 ("strong buy") Rank: MFB - Maidenform Brands, Inc. -- Small Cap POL - PolyOne Corp. - Small Cap CYT - Cytec Industries Inc. -- Mid Cap WBC - WABCO Holdings Inc. -- Mid Cap CLF - Cliffs Natural Resources Inc. -- Large Cap HTZ - Hertz Global Holdings, Inc. -- Large Cap Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.About the Author:
Kevin Matras is the Research Wizard Product Manager and weekly contributing Editor at Zacks Investment Research who creates and writes the Zacks Commentary Screen of the Week and Know Your Options. For more information, visit http://www.zacks.com.
