Sign in
Become a MarketWatch member today
Howard Gold
Jan. 14, 2011, 12:01 a.m. EST
View all Howard Gold "º
"¹ Previous Column
Ten surefire predictions for 2011
First Take "º
Groupon IPO being pushed by Wall Street
By Howard Gold
NEW YORK (MarketWatch) "” Sell your losers and let your winners ride. That's the advice many successful investors give their clients.
But first you need to know who the winners really are. Any guesses? Gold? Sure. Emerging-market stocks and bonds? They have been until recently.
The biggest winner you probably haven't heard of is U.S. small-cap growth stocks. Yes, those darlings of the late 1990s have made a stunning comeback.
Barclays shares have potential to climb higher, after suffering over the last few years, according to a London brokerage. Collins Stewart has initiated the bank as a "buy" and says Barclays offers one of the deepest valuations in global banking.
According to Callan Associates, the Russell 2000 Growth Index /quotes/comstock/64a!i:ruo (RUO 454.98, +3.15, +0.70%) soared 29% in 2010, trailing gold by half a percentage point and beating real-estate investment trusts by a full point.
This is the second consecutive year small-cap growth stocks have topped the charts. They outpaced all other domestic-equity groups in 2009, with a 34.5% return.
That's not surprising: Small-cap growth stocks are usually one of the first movers in economic and market recoveries. They also topped the leader board in 2003, when the last recovery and cyclical bull market in stocks got started.
"Small stocks tend to do well in little bursts "¦ after times of recession," said Jay Kloepfer, director of capital-market and alternatives research at Callan, a San Francisco-based investment consulting firm.
Its Periodic Table of Investment Returns graphically captures the market's big winners and losers each year. (Callan Associates will post an up-to-date version on its website in coming weeks, and was kind enough to share preliminary data with me for this column.) See more Callan tables.
Small-cap growth stocks generally make up the fastest growing companies in the Russell 2000, the most widely used index of domestic smaller stocks. Their market capitalization "” stock price times number of shares outstanding "” generally ranges from $300 million to $2 billion. (Large-cap stocks have market values above $10 billion.)
Since small growth companies tend to be more economically sensitive than large blue chips, their stocks react much more quickly to a change in the weather.
"The economy tends to lag and the market tends to lead," added Kloepfer. It sure has this time.
Another reason for their huge gains the last two years: pent-up demand.
"Going into 2008, you had "¦ the biggest bull market in small-cap value versus small-cap growth in [recent] history," said Jim Oberweis, president of Oberweis Asset Management, a small-cap growth specialist based in Lisle, Ill.
"From March 31, 2000 through the end of 2008, the Russell 2000 Value Index /quotes/comstock/64a!i:ruj (RUJ 1,088, +11.21, +1.04%) outperformed the Russell 2000 Growth Index by an astounding 1,253 basis points annualized," he noted.
That means small value outdistanced small growth stocks by 12.5% a year for almost nine years.
The daily deal Internet company just received private funding of nearly $1 billion so why is it reportedly looking at an IPO so soon?
12:06 p.m. Jan. 14, 2011
"Martin Luther King's message is still relevant http://bit.ly/dUhuBI" 6:34 p.m. EST, Jan. 14, 2011 from MarketWatch
"$AAPL expected to report strong year-end results http://bit.ly/ffr3OH" 5:45 p.m. EST, Jan. 14, 2011 from MarketWatch
"Housing industry readies #mortgage #tax break fight http://bit.ly/ebmRx7" 5:11 p.m. EST, Jan. 14, 2011 from MarketWatch
"Retail sales increase 0.6% in December http://bit.ly/hSFIvr" 4:36 p.m. EST, Jan. 14, 2011 from MarketWatch
"Stocks end higher Friday as financials rise; S&P, Dow extend weekly winning streak to 7 http://on.mktw.net/hTRZeB" 4:04 p.m. EST, Jan. 14, 2011 from MarketWatch
Digital Dvorak
Next tech panic: no more IP addresses
How to stay in the market's sweet spot
Commodities Corner
Gasoline preps for a return to $4 a gallon
Media Web
Tucson massacre: Don't blame the media
On Mutual Funds
A REIT that may yield problems for investors
On Retirement
The rising cost of retirement products
Read Full Article »