Analyst Actions: Credit Suisse On Darlings Of Small Cap: "Most Highly Owned R2000 Stocks By Small Cap Funds & Other Screens For 4Q12"

Dissecting The Holdings Of An Influential Category: "Within the small/mid cap landscape, small cap funds have the most assets under management. In this report, we examine the individual stock level holdings of 565 small cap funds that benchmark to one of the R2000 indices (240 core, 169 growth, 156 value) at the end of 4Q12. We compiled the data using quarter end holdings from funds tracked by both eVestment and Lipper, giving us a unique understanding of how both institutional and retail funds have been positioned."

Industrials Highly Represented Among Darlings & Rising Stars: "8 of the top 25 small caps most widely owned by small cap funds are Industrials, including Hexcel Corporation ( HXL ), Beacon Roofing Supply, Inc ( BECN ), EnerSys ( ENS ), Genesee & Wyoming Inc ( GWR ), Emcor Group Inc ( EME ), The Middleby Corporation (MIDD), Actuant Corporation (ATU) and Chart Industries, Inc (GTLS). We also found that 6 names on the Rising Stars List (names with the largest increase in fund ownership during 4Q12) are Industrials - MasTec, Inc. (MTZ), Mueller Industries, Inc (MLI), TriMas Corp (TRS), United Stationers Inc (USTR), Generac Holdings Inc (GNRC), Moog Inc (MOG.A). This is noteworthy given our concern that Industrials has become a bit too crowded, as stakes in the sector rose back to peak levels in small cap funds during 4Q12."

Other Important Items On The Darlings List: "Three of the names on the latest Darlings list - Genesee & Wyoming Inc ( GWR ), Oasis Petroleum Inc (OAS), CommVault Systems, Inc (CVLT) - are projected to move from the Russell 2000 index up to the Russell 1000 index after the Russell Reconstitution in June. We found that last year's promotions were sold by small cap funds in either 2Q12 and 3Q12. Gulfport Energy Corporation (GPOR) is now the #1 name on the Darlings list (it is the most crowded stock in small cap funds). Energy XXI (Bermuda) Limited (EXXI) (previous #2) remains on the Darlings despite seeing ownership levels deteriorate (now #13)."

Performance Of Darlings & Fringe Favorites Improves In 2013: "Widely owned names within small cap funds - whether they are in the R2000 (Darlings) or outside the benchmark (Fringe Favorites) - have had choppy performance trends since we started tracking the time series. Both groups struggled to outperform the Russell 2000 index in 2Q12 and late 2012. But so far in 2013 both groups are outperforming. Performance of these names may have been helped more recently by strong mutual fund inflows into actively managed small cap funds. Though the funds flows environment has improved, we are still cautious on these names due to (1) lack of incremental buyers, (2) small cap investors' renewed thirst for new ideas, (3) the seasonality of small cap funds flows & their tendency to fade over the summer."

Smaller Caps, Tech Highly Represented Among Fading Stars: "12 of the names on the list of Small Funds' Fading Stars (25 names that saw the biggest decline in ownership during 4Q12) have a market cap under a billion, a contrast from 3Q12 where we found a general rotation away from bigger cap/non benchmark names among small cap funds. The Fading Stars list also includes 8 names in Tech - GT Advanced Technologies Inc (GTAT), Cymer, Inc. (CYMI), SolarWinds Inc (SWI), Concur Technologies, Inc (CNQR), Emulex Corporation (ELX), Electro Scientific Ind. (ESIO), Fairchild Semiconductor Intl Inc (FCS), and Monolithic Power Systems, Inc (MPWR) - a sector that has been lowly owned in small cap portfolios recently."

Rising Stars Lag In 1Q13 After Strong 4Q12; Fading Stars Lead In 1Q13 After Weak 4Q12: "Not surprisingly Rising Stars fared well in 4Q12 (the quarter during which small cap funds were adding to positions) and Fading Stars lagged in this same time frame. But so far in 1Q13, the Rising Stars are lagging while the Fading Stars are leading."

It added: "See Appendix in our full report For Sector Focused Screens: For small cap investors looking for more details on how their peers are positioned in specific sectors, we ran our Darlings, Fringe Favorites, Rising Stars, and Fading Stars screens for each major GICS sector."

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

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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 Nasdaq, Inc.

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