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Millionaire Now! by Larry NusbaumThis blog is based on the organizational principles found in my new book, "Millionaire Now! - A Financial Toolbox with Seven Steps to Wealth". |
Investors Shifting To Mid Caps
They go on to say that, "Mid-caps took off this year as investors grew leery of large caps and small caps -- for different reasons." Mid-caps have also benefited from being in the buyout bull's-eye. "They've been the area targeted by most leveraged buyout funds," said Chris Hyzy, head of investment strategy for U.S. Trust. One example: the buyout of mid-cap orthopedic firm Biomet (NasdaqGS:BMET - News) by a group including Kohlberg Kravis Roberts.
"Still, the economy's growth is slowing. That should hurt small caps more than mid- and large caps", Hyzy says.
"Small caps will have a harder time accessing credit," he said. And credit access will be harder overall in the wake of the current subprime lending meltdown. That will pinch financial firms in general, he says.
"And small caps are heavily levered in smaller finance companies and regional banks," Hyzy said. "Those have bigger allocations (than larger financial firms) to the mortgage and subprime markets."
Here are some important points to keep in mind for fund investors:
- Don't chase performance by overweighting mid-caps. Maintain a diversified, asset-allocated portfolio according to Modern Portfolio Theory, with a bias towards value and towards small-caps.
- The sub-prime meltdown will not hurt smaller firms as suggested above since they really don't borrow much money (from banks) when they are very small/new and when they do they usually go to their community banks who are not in the sub-prime business if they are even in the home loan business at all.
- As I have noted before , the bias towards value, over a long period of time has outperformed growth:
- Small Cap Value returns from 1927-2004: 14.7%
- Micro Cap returns from 1927-2004: 13.0%
- Large Cap Value returns from 1927-2004 : 11.7%
- Large Cap Growth returns from 1927-2004: 9.5%
- From 1927 through 2006, an index of large U.S. growth stocks produced an annualized return of 9.3 percent; large U.S. value stocks, by contrast, had a comparable return of 11.5 percent. Among small-cap stocks over the same period, growth stocks returned 9.3 percent, and value stocks returned 14.5 percent.
- Check your small and mid-cap funds on morningstar.com to see if their portfolio holdings have grown in size to the point where they are no longer small or no longer mid. Rebalance if needed and for some ideas, check HERE .
Portable Alpha Daily also sees Mid Cap Markets Providing Alpha .
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