The small-cap trade has been the year’s best-performing strategy as these stocks have rocketed to the upside, leaving their large-cap counterparts in the dust.
Many reasons can be attributed to the phenomenal success of small-cap stocks. They often hold a significant portion of their value in cash, which allows them to be more nimble during market changes and capitalize more on responding to opportunities quickly than larger stocks. They are also typically well-capitalized and resourceful, with many holding greater access to quality information and more capable management than their larger peers.
Small-cap companies also have the benefit of being moreanchorable. Smaller stocks can move much more quickly due to their smaller market cap than blue-chip stocks, creating opportunities for investors to make a generous return on a short-term basis. Small-cap companies offer greater potential when it comes to the volume of earnings compared to large-cap stocks, creating the possibility of significant returns with appropriately managed risk.
The combination of these benefits helps create momentum for small-cap stocks during economic cycles of growth and expansion. This year, we’ve seen investors embrace the small-cap trade due to its historically higher returns and lower volatility. This continuously growing trend of investing heavily in small companies has caused large-cap stocks to be overshadowed, as these stocks struggle to keep up with the pace of smaller, more agile, and more profitable stocks.
As we look ahead to 2021, the small-cap trade is an excellent way for investors to maximize potential return while also reducing risk by diversifying their portfolio. Small-cap stocks have proven to be lucrative investments this year and many investors are seeing impressive returns. The smart choice of the small-cap trade has consistently outperformed large-cap stocks in 2020, and this trend is likely to continue going into the new year, making this an investment opportunity worth exploring for all investors.
