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Opus News & Insights

Review of U.S. Small Caps – August 2016
Tuesday, September 27, 2016

Key Takeaways
  • U.S. small cap equities have continued their run off of the February 11th lows (+30%), posting a second straight month of outperformance against U.S. large caps year-to-date. In August,small cap equities returned 1.8%, outpacing the S&P 500 by 1.6%;small caps are leading U.S. large caps by 2.4% on the year. Unlike large caps, small caps are 3.5% below their all-time highs on June 19th, 2015. August was a very calm month with the average daily volatility less than 1%, a feat that has only happened three times during the month of August since 1995.
  • During 2016, the Russell 2000 Value Index (R2KV) has outperformed the Russell 2000 Growth Index (R2KG) in six (6) of the first eight (8)months. However, since the market’s lows on February 11th, the R2KG has outperformed the RUJ by 20 bps, returning 29.9%. In August,the R2KV outperformed the R2KG due to its nominal weighting in Health Care, even after Utilities were beaten down on the increased speculations that the Federal Reserve would increase rates during 2016.
  • In the first half of 2016, only a few sectors drove the market’s performance and these inflated returns have started to revert during the first two months of the second half. This shift in sector performance, partly due to higher expectations of a Fed hike, has benefitted Financial Services, especially banks, while hurting Utilities and REITs. Energy was the highest performing sector in the month by almost two-fold,rallying with the price of oil. Materials and Processing continues to lead all sectors for 2016.
  • The R2KV continued its theme of favoring non-earners as well as lower valuations in August. Overall, consistent with 2016 trends, lower quality has performed better than higher quality.• Active managers in small caps have continued to see outflows and now only 16.7% of managers are outperforming the R2KV this year. Within small caps, M&A is on pace to have its busiest year since 1994. We have the lowest number of U.S. publicly traded companies since 1984.
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