| NEW YORK, Sept 14
NEW YORK, Sept 14 With the U.S. stock market
near record highs, some mutual fund managers say they are opting
to go small, picking up the shares of companies with tiny market
values that may have more room to grow.
Companies with smaller market capitalizations are typically
seen as riskier because they may not trade as often or have the
same financial cushion as larger companies.
Yet fund managers say that these companies look attractive
at a time when larger companies struggle to post earnings
growth, increasing the likelihood that small companies will
become acquisition targets.
Earnings of the companies in the large cap S&P 500 are on
pace to decline 2 percent in the second quarter, and 1 percent
in the third quarter, according to Thomson Reuters data.
At the same time, the broad rally that has pushed the
small-cap Russell 2000 index up approximately 11.5 percent over
the last six months means that there are fewer small companies
trading at attractive prices, leaving fund managers more willing
to dip lower instead.
"We're finding more interesting stories the further we go
down in market cap because it's more likely you will find
something that's been overlooked," said Mike Balkin, a
co-manager of the William Blair Small Cap Growth fund.
Balkin has been adding shares of companies that may be
acquisition targets, such as remote control marker Universal
Electronics Inc, a $1 billion market cap company that
extended its agreement with Comcast Corp in March to
provide voice activated remotes for the company's Xfinity cable
Shares of Universal Electronics are up 40.2 percent so far
Overall, so-called microcaps have outperformed both
small-caps and large caps over the last six months, with the
Russell Microcap index gaining 12.6 percent, a 1 percentage
point jump over the Russell 2000 and more than double the 5.5
percent gain in the S&P 500 over the same period.
Sandy Villere, a co-portfolio manager of the Villere
Balanced fund, said that he is buying smaller
companies as more investor money flows into dividend stocks such
as telecoms and utilities.
He has been adding shares of Taser International Inc
, which makes non-lethal weapons and body cameras used
by police departments. Shares of the $1.3 billion market-cap
company are up 46 percent for the year to date.
"Money keeps pouring into the big, safe companies, and
that's leaving these small growth names there for the picking,"
(Reporting by David Randall; Editing by Alan Crosby)