Small Cap Growth Stocks Will Continue to Outperform in 2017: PM

Small cap growth stocks outperformed the broader market in 2016

Financial Post | January 12, 2016: Small cap growth stocks outperformed the broader market in 2016, and are poised to repeat that performance this year.

After disappointing in 2014 and 2015, as investors fearing pending interest rate hikes by the Federal Reserve and other macro concerns weighed on risk appetite, things started to change in February 2016. That’s when small caps began to lead the market.

In addition to a general reversion to the mean, whereby this group of stocks trended back toward their historical average, a big factor driving small caps was the strong U.S. dollar.

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As Tom Antony, president and portfolio manager at Toronto-based Peregrine Investment Management explains, large cap U.S. multinationals are hurt when the greenback rises because of their often hefty foreign operations. They lose out in the currency translation, while small caps are much less vulnerable because they typically have less international exposure.

While the Canadian small cap universe is often skewed by its high weighting in resources, Antony noted that non-resource small caps tend to trade in sync with their U.S. peers.

The portfolio manager of the Peregrine Investment Management Fund LP, which has more than $100 million in assets and was up 17.5 per cent in 2016 as of Nov. 30, also noted that Donald Trump’s victory in the U.S. election gave the market a boost, but it was going to be a good year for small caps regardless of who won.

“Although Trump’s policies aren’t entirely clear, it’s fair to say that in general, they are economically positive,” Antony said. “The market has certainly focused on the positive — tax cuts, a potential increase in infrastructure spending, and less regulation.”

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