Chart talk: How the retail investing tilt to small-cap stocks could pay off
Posted On May 1, 2022
It could be a Summer of Love for retail investors that are switching from large-cap to small-cap stocks of late.
The market is seeing a period analogous to the late ’60s, where small-caps outperformed, according to BofA Securities.
Retail participation makes of 20% of the large-cap market (SPY) (IWB) and 30% of the small-cap market (NYSEARCA:SLY) (NYSEARCA:IWM). While small-caps were favored by a much greater margin in early 2021, making up nearly 50% of the market during the meme craze, the gap narrowed to an equal split late last year.
In 2022, though, retail investors have again moved to small-cap equities.
With inflation at four-decade highs, small-cap companies have mentioned labor less than large-cap ones on earnings calls, year over year, while they have more signs of pricing power, BofA said.
In a historical analog of 1965 to 1968, small-caps were the better performers, according to the equity strategy team.
And in stagflationary environment, small-caps have risen 3% on average annualized returns vs. no change for large-caps.