Are Small-Cap Stocks Back In The Game?

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When the stock market was rallying earlier this year, IndexUniverse Analyst Ugo Egbunike noticed the rally rested almost entirely on the backs of the large-caps. Using Vanguard ETFs, he showed that the large-caps outperformed their smaller peers by about 7 percent over the 12 months ending April 2012.

Under normal market conditions, small-caps should outperform large-caps when the economy is doing well and underperform them when the economy is doing poorly.

Indeed, small-cap stock performance is generally a good indicator of economy strength, so the segment's underperformance earlier this year was troubling.

Recently, however, small-caps have been keeping pace with-and even outperforming-their large-cap brethren as the stock market has rallied.

Over the past month, the Schwab U.S. Small-Cap ETF (NYSEArca:SCHA) has returned almost double the performance of the Schwab U.S. Large-Cap ETF (NYSEArca:SCHX), while the Schwab U.S. Mid-Cap ETF (NYSEArca:SCHM) is in between the two.

Whether the market continues to rally, it's good to see small-caps acting like small-caps again.

The Fed is meeting in just five days to discuss whether to further stimulate the U.S. economy-if you're predicting good news, now might be a very good time to increase your small-cap allocation.

At the time this article was written, the author held a position in SCHA. Contact Carolyn Hill at chill@indexuniverse.com .


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: SCHA , SCHM , SCHX

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