Philosophy & Process

Micro-cap — One of the Last Inefficient Market Cap Classes

Less researched companies can offer excess returns.1 This philosophy, strongly linked to The Small Firm Effect2 — the finding that smaller companies have historically provided stronger absolute and risk-adjusted returns than other asset classes — guide our investment philosophy. No Analyst Coverage: Analysts that cover Small/Micro-cap stock are typically from boutique research/brokerage firms.
% Of Companies With No Analyst Coverage By Market Capitalization Analysts that cover Micro-cap stock are typically from boutique research/brokerage firms.
Number of Stocks 77 82 79
Zero Analyst Coverage 11 30 4
One Analyst Coverage 13 16 6
Average Number of Analysts4 2.6 1.8 5.0

All data as of 12/31/17, unless otherwise noted.

Micro-caps are measured by the Russell Microcap Index, Small-caps by the Russell 2000 Index, Mid-caps by the Russell Midcap Index, and Large-caps by the S&P 500 Index.

Russell Microcap Index is a capitalization weighted index of 2,000 small-cap and micro-cap stocks that captures the smallest 1,000 companies in the Russell 2000, plus 1,000 smaller U.S.-based listed stocks.  Russell 2000 Index is an index that measures the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks.  Russell Midcap Index measures performance of the 800 smallest companies (31% of total capitalization) in the Russell 1000 Index.  S&P 500 Index is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe.  One cannot invest directly in an index.

1 “The Relationship Between Market Value and Return of Common Stocks.” Rolf Banz, Journal of Financial Economics, November, 1981.

2 “The Neglected and Small Firm Effects.” Avner Arbel & Paul Strebel, The Financial Review, vol. 18, issue 4, 1982.

3 Source: Capital IQ as of 12/31/17.

4 Typically 0–1 at initial purchase.

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