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Chuck: This year small caps have underperformed. I think this year is largely a “downish”
year so that phenomena has actually started quite some time ago of small caps underperforming
in down years, that’s very classic of that happening and the flipside of that is I believe
the next phase is an up phase where I very firmly believe that large caps will underperform
small caps. Over time I think it’s going to be highly rotational. I think the real
advantage of small cap is you’re going to have potentially higher returns with non-correlated
phases.
Frank: When you look back at 2011,it clearly was a year of risk on, risk off. It was nice
rally which started in really August with Mr. Bernanke’s speech in 2010 and continued
all the way to the peak of the market in April in 2011 and basically the trade switched and
you went risk off and we went close to 30%, at least in the Russell 2000 into that first
ugly Monday in October. Then you went on to have one of the best months the Russell 2000
has ever seen during the month of October, a gain of 15%, the third best month the Russell
2000 had ever seen and then you went on to have what would have been the third worst
month for the Russell 2000 in November if it wasn’t for that wonderful 10% rally we
had in the final days of November so it clearly was a year of risk on and risk off. In that
type of environment small cap stocks did well in the “risk on” portion of the event
but the “risk off” portion of the event was actually quite painful. But when we look
at it, it’s actually been a great time for us to find opportunities. It’s been painful
from an absolute standpoint and I would argue that it feels worse than it actually was when
you look at the year to date totals for the Russell 2000. What I think it did from our
perspective is it created an enormous amount of opportunities, the risk on risk off highly
correlated environment that we were in and in that environment, our world is so much
larger than the Russell 2000, we look at a lot of stocks outside the Russell 2000. We
fish in a very big pond, both domestically and internationally. So we were able to find
a lot of great opportunities that you wouldn’t be able to find if you were just owning a
simple index like the Russell 2000.