Monthly performance of small caps via the Russell [+] 2000 from December 2023 to November 2024, highlighting the bumpiness that has come after several strong months. In the 12 months ending November 2024, the Russell 2000 had gained 34.6% — outpacing the Dow, S&P 500, and Nasdaq 100.
The small-cap funds saw an average return of 25.69% from December 2023 to December 2024, while mid-cap and large-cap funds yielded returns of 26.91% and 14.97% during the same period. So far, the Sensex has gained 8.92% and the Nifty has risen 9.49% in 2024.
We expect small-cap earnings growth could exceed that of large-cap stocks in 2025, aided by easier earnings comparisons.
The mid-cap and small-cap segments have been standout performers in the Indian equity market in 2024. The NIFTY Midcap 150 and NIFTY Smallcap 250 indices have delivered impressive year-to-date returns of approximately 18% and 25%, respectively, as of December 2024.
Small-cap valuations – Attractive
We expect earnings to drive the next leg higher for small-cap share prices. Analysts are looking for robust earnings growth: 15% this year, and by over 30% in 2025 and 2026. That is ahead of the long run rate of 13% growth (see Exhibit 3).
But analysts and investors are increasingly optimistic about small-caps' potential to outperform large-caps in the months ahead, driven by the likelihood that the U.S. won't fall into a recession and that interest rates will fall by as much as 1.5 percentage points by the end of 2025, says Sam Stovall, chief investment ...
Small-cap mutual funds perform well over a long period of time. However, over a short period of time, they tend to be very volatile. So if you plan on withdrawing/redeeming your money from the mutual fund early, you could suffer losses. Sure, you could also make gains, but there is always the risk.
William Blair analysts call Vernova stock "a "top pick" for 2025, as artificial intelligence (AI) data centers consume vast amounts of energy. Wall Street expects Vernova earnings to boom 174% per share in the year ahead on 5% sales growth. GE Vernova stock flourishes a Composite Rating of 92 and RS Rating of 98.
However, between the end of 2008 and the end of 2023 small caps have outperformed, delivering a cumulative return of 521% against 466% for the large cap index over the 15-year period – although past performance should not be seen as a guide to future returns.
Small-cap funds are riskier than large-cap funds and may not be suitable for everyone. Small-cap companies are more sensitive to market changes and can experience sudden and wide price fluctuations. Small-cap companies are less popular and smaller in size, making their stock less liquid.
Most investors think smaller companies underperform in a recession. In most cases, they are correct. However, what's less well-known is that small caps usually exit recessions quicker than assumed – outperforming large caps. This rebound can begin as early as three months into an economic downturn.
As of October 19, 2024, the small cap index was overvalued at a Price-to-Earnings (P/E) of 33.39, while the 3 year long term average stands at 24.49. But experts think there are certain sectors within the small cap that are fairly valued.
Key Takeaways. In July 2024, U.S. small-cap stocks outperformed large-cap stocks after lagging for the first half of the year, driven by a cooler inflation report and improved market sentiment.
Looking ahead, S&P 500 stocks are currently forecast to generate 13% EPS growth in 2025 and 13.1% growth in 2026 (versus 8.5% EPS growth in 2025), while the S&P SmallCap 600 Index is currently forecast to generate EPS growth of 20.9% in 2025 and 18.6% EPS growth in 2026 (versus minus 8.0% EPS growth in 2024), according ...
Managers can offer a long list of reasons small-cap value funds have underperformed. For much of the last 15 years, one challenge has been low interest rates, which tend to benefit growth stocks more than value ones because they make the earnings of growth companies more attractive.
The overall quality of publicly traded small caps has deteriorated, as private sponsors help top performers stay private for longer. Instead of small caps, investors should consider actively adding exposure to U.S. large-cap value and mid-cap growth stocks.
After an exceptionally strong December, small caps pulled back modestly in January, falling 3.89% and underperforming large caps by 528 basis points (Russell 2000 versus Russell 1000).
The small cap segment can be extremely volatile in the short term, but they have the potential to offer very high returns over a long period. Small cap schemes are recommended only to aggressive investors with a high-risk appetite and long investment horizon, say, around seven to 10 years.
Inflation and small-cap performance through the decades
We found that the MSCI World Small Cap Index outperformed the MSCI World Index by 0.47% per month in periods of low inflation (CPI < 2%) and by only 0.09% in periods of high inflation (CPI > 2%).