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<ul class="summary-list"><li>Small-cap stocks look set to deliver even bigger returns to investors in 2021, thanks to economic recovery at the hands of stimulus and vaccines, Bryn Mawr's Mills said.</li><li>"From a relative value perspective, you're going to do well in <keyword id="64751" type="PERSON" weightage="60" keywordseo="Small-caps">small caps</keyword> and I think the setup is just good for 2021," Mills told CNBC's 'Trading Nation'.</li></ul><p>Small-cap stocks are set to deliver even bigger returns to investors in 2021, as a vaccine and a raft of stimulus help repair the damage to the economy from the coronavirus pandemic, Bryn Mawr chief investment officer Jeff Mills said on Wednesday.</p><p>Mills, whose company has $2.4 billion in equity assets under management, according to Bloomberg data, told CNBC's <a href="https://www.cnbc.com/2020/12/30/small-caps-breakout-is-just-starting-bryn-mawrs-jeff-mills.html">Trading Nation</a> the outperformance of small-cap stocks in 2020's record-breaking equities rally would likely continue next year.</p><p>"For the first time in a long time, we're at this point where monetary policy and fundamental economic growth, at least in our opinion, line up, and then on top of that, you have the fiscal stimulus," he said.</p><p>The <a href="https://markets.businessinsider.com/index/russell_2000">Russell 2000</a> index of small companies - those with a market capitalization of less than $30 million - has surged by nearly 19% so far this year, eclipsing the 14% gain in the <a href="https://markets.businessinsider.com/index/s&amp;p_500_500">S&amp;P 500</a> large-cap index, which has benefitted from double-digit percentage gains in some of its most valuable components, particularly those whose products have been in high demand in the "work-from-home" economy, such as Apple, Amazon, streaming service Netflix, or video conferencing platform Zoom. </p><p>This outperformance is not unusual. Small caps, because they are less owned, tend to be more volatile than larger companies and, as such, often fall more than the broader market in a downswing and gain more when values recover.</p><p><strong>Read more: </strong><a href="https://markets.businessinsider.com/news/stocks/google-founders-modeled-alphabet-warren-buffett-berkshire-hathaway-2019-12-1029926618"><em>Google's founders visited Warren Buffett more than a decade ago - and were so inspired they modeled Alphabet on Berkshire Hathaway</em></a></p><p>Trillions of dollars in fiscal stimulus, together with the most recent agreement among lawmakers to disburse another $900 billion in aid, and record-low borrowing rates have helped foster a record-breaking rally on Wall Street.</p><p>"It clears the path for the market to believe that okay, maybe over the next quarter, we're going to have some trouble from an economic data perspective, as we work through this next phase of the virus. But as we move forward throughout the totality of 2021, I think the outlook actually looks pretty good," Mills said.</p><p>The rollout of vaccines against COVID-19 across the United States, which has the highest death toll in the world and the worst infection rate, with over 300,000 dead, has helped shore up investor confidence in a swift recovery next year, once enough people are protected against the virus.</p><p>Typically small- and mid-cap companies tend to be more closely linked to the health of the underlying economy, given that they are usually more likely to have a domestic, rather than international focus. </p><p>The roughly 30 million small and medium-sized companies in the US account for nearly two-thirds of net new private sector jobs in recent decades, according to official US <a href="https://ustr.gov/trade-agreements/free-trade-agreements/transatlantic-trade-and-investment-partnership-t-tip/t-tip-12">data</a>.</p><p>Since the depths of the market crisis in March, the <keyword id="1742274" type="PERSON" weightage="60" keywordseo="Russell-2000">Russell 2000</keyword> has doubled in value, compared with a 66% increase in the value of the <keyword id="123873" type="PERSON" weightage="60" keywordseo="SP-500">S&amp;P 500</keyword>. And this may be just the beginning, according to Mills. </p><p>"Those stocks are now breaking out of a two-and-a-half-year bear market. So I think from a relative value perspective, you're going to do well in small caps and I think the setup is just good for 2021," he said.</p><p><strong>Read more: </strong><a href="https://www.businessinsider.com/stock-market-outlook-2021-top-europe-investors-fund-managers-picks-2020-12"><em>We spoke to the top 5 European fund managers of 2020 to uncover their tips and tools for delivering stellar returns - and their star stock-picks for 2021</em></a></p>

Bryn Mawr's Jeff Mills believes the small-caps boom is only just beginning and 2021 will deliver even bigger gains

<ul><li><strong>The market's leadership is wider than perceived and consists of more than just the largest tech stocks, <keyword id="692296" type="PERSON" weightage="60" keywordseo="James-Paulsen">James Paulsen</keyword>, chief investment <keyword id="149794" type="POSITION" weightage="60" keywordseo="strategist">strategist</keyword> at The Leuthold Group, said Friday.</strong></li><li><strong>While cyclical sectors trail the <a href="https://markets.businessinsider.com/index/s&amp;p_500_500">S&amp;P 500</a> by 5% on a market-weighted basis, they exceed the benchmark on an equal-weighted basis, Paulsen highlighted.</strong></li><li><strong>Similarly, the S&amp;P 500's outperformance over the small-cap-focused S&amp;P 600 is halved when market weighting isn't taken into account.</strong></li><li><strong>Strong gains from tech giants "distorted many traditional market signals" and possibly shifted investors' views of the market, the strategist added.</strong></li><li><strong><a href="https://www.businessinsider.com/?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingestutm_source=msn.com&amp;utm_medium=referral&amp;utm_content=msn-slideshow&amp;utm_campaign=bodyurl?utm_source=markets&amp;utm_medium=ingestts&amp;utm_medium=ingest">Visit the Business Insider homepage for more stories</a>.</strong></li></ul><p>Cyclical and small-cap stocks aren't getting the credit they deserve for the market's rapid recovery, James Paulsen, chief investment strategist at The Leuthold Group, said Friday.</p><p>Tech giants played an undeniably large role in lifting indexes from their March lows. Crowding in mega-caps hit dot-com-era levels, and their outperformance led the Nasdaq to be the first major index to erase its pandemic-induced losses. Strategists warned of a bubble forming in the market and that leadership in the months-long rally was dangerously thin.</p><p>Yet certain gauges suggest the bull market's drivers are more varied than just the popular tech giants. While cyclical sectors trail the <a href="https://markets.businessinsider.com/index/s&amp;p_500_500">S&amp;P 500</a> by roughly 5% on a market-weighted basis, they've made a full recovery from the March trough and now outpace the benchmark on an equal-weighted basis, Paulsen said.</p><p><em><strong>Read more:</strong> <a href="https://www.businessinsider.com/stock-market-crash-expert-foresees-drop-massive-financial-crisis-bankruptcies-2020-10" target="_blank" rel="noopener">'The largest financial crisis in history': A 47-year market vet says the COVID-19 crash was merely a 'fake-out sell-off' — and warns of an 80% stock plunge fraught with bank failures and bankruptcies</a></em></p><p><em><div type="image" title="Screen Shot 2020 10 09 at 4.26.39 PM" height="833" width="771" msid="78591663" hostid="261"></div></em></p><p>"<keyword id="918394" type="PERSON" weightage="60" keywordseo="Cyclicals">Cyclicals</keyword> have not done as well as the FAANGs — few stocks have — but relative to others, they have been leaders since the March market low, they've posted particularly strong outperformance since August, and are now outpacing year-to-date," he added.</p><p><keyword id="64751" type="PERSON" weightage="60" keywordseo="Small-caps">Small caps</keyword> have similarly played an underrated role. The S&amp;P 600 — a popular index for small-cap stocks — still trails the S&amp;P 500 by more than 16% on a market-weighted basis. Yet the performance gap shrinks to 8% when viewed on an equal-weighted basis.</p><p>While largely neglected by investors, smaller firms "have done much better in recent months" than tech-heavy indexes would let on, Paulsen said.</p><p>Outsized gains from tech giants "distorted many traditional market signals" and potentially impacted investors' views of the market, he added. Small-cap and cyclical performances have been "more encouraging than widely perceived," and the continued economic recovery stands to lift the ignored stocks even higher. </p><p><em><strong>Now read more <keyword id="31671" type="CITY" weightage="100" keywordseo="markets">markets</keyword> coverage from Markets Insider and Business Insider:</strong></em></p><p><strong><em><a href="https://www.businessinsider.com/stock-market-crash-expert-foresees-drop-massive-financial-crisis-bankruptcies-2020-10" target="_blank" rel="noopener">'The largest financial crisis in history': A 47-year market vet says the COVID-19 crash was merely a 'fake-out sell-off' — and warns of an 80% stock plunge fraught with bank failures and bankruptcies</a></em></strong></p><p><em><strong><a href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-election-fuel-turbulent-swings-volatility-morgan-stanley-2020-10-1029666797">Stocks face a turbulent path forward if Democrats sweep in November, Morgan Stanley says</a></strong></em></p><p><em><strong><a href="https://markets.businessinsider.com/news/stocks/shaq-mlk-disney-execs-forest-road-spac-blank-check-launch-2020-10-1029666326">Shaquille O'Neal, former Disney executives, and Martin Luther King Jr.'s son target $250 million SPAC launch</a></strong></em></p>

Why the stock market's sharp rally off March lows is even stronger than in seems, according to one Wall Street chief strategist

<ul class="summary-list"><li><keyword id="547891" type="PERSON" weightage="60" keywordseo="market-capitalization">Market capitalization</keyword> ("<keyword id="100078" type="PERSON" weightage="60" keywordseo="Market-cap">market cap</keyword>") is the total value of all a company's stock: the number of outstanding shares by the share price.</li><li>Stocks are often categorized by the size of their market capitalization: large-cap, mid-cap, small-cap, or micro-cap.</li><li>An indicator of financial strength, market capitalization suggests how risky a stock is and what kinds of returns it might offer.</li></ul><p>A big part of the investing game is trying to figure out what a company is <em>worth</em>. If you can measure a company's value, you'll be in a better position to know whether you want to commit your hard-earned capital to its stock. </p><p>Of course, a variety of ways exist to evaluate public companies and their stock. One of the most common is by market capitalization, or "market cap" for short.</p><p>A company's market capitalization is what it would cost you if you were to buy up all of its outstanding shares at the current share price. It is a way of sizing up a company by the value that investors put on it. </p><p>Here's how it works, and why it matters to your investing strategy.</p><h2>What is market capitalization?</h2><p>Market capitalization is essentially the total value of a company's outstanding stock. </p><p>Expressed in dollar figures (or whatever the local currency), it's made up of two factors: the number of a company's outstanding shares, and the price of each share. </p><p>A company's market cap is often included in its online stock listing or company profile. But figuring it out isn't all that hard. To calculate the market capitalization you simply multiply the number of shares outstanding by the price per share. </p><p>For example, a company that has 50 million outstanding shares and a share price of $10 has a market capitalization of $500 million.</p><p>We could use Apple (<a href="https://markets.businessinsider.com/stocks/aapl-stock" target="_blank" rel="noopener">AAPL</a>) as a real-life example. As of December 2020, Apple has about 17 billion shares outstanding. The price of Apple's stock is at $113.85 per share. To calculate the market capitalization, we multiply the two and get about $1,921 billion.</p><h3>What makes market capitalization change? </h3><p>Since it depends directly on a company's stock price, market capitalization changes every day. As the price of a company's stock goes up, so does its market capitalization, and vice versa. </p><p>Changes in the number of outstanding shares also influences market capitalization. Companies sometimes issue additional shares to raise capital or buy back shares. Assuming a constant share price, issuing shares would increase market capitalization and buying them back would decrease it. </p><h2>Market capitalization categories and investment strategies</h2><p>You'll often hear companies classified in terms of their market capitalization. Based on dollar size, these classifications can also help investors pick the right stocks for their investment goals and risk tolerance.</p><p>The most common market cap categories for stocks are:</p><ul><li>Large-cap</li><li>Mid-cap</li><li>Small-cap </li><li>Micro-cap and nano-cap</li></ul><p>Although no official or legal designations exist, there are generally agreed-upon boundaries for each market cap category.</p><h3>Large-cap valuation</h3><p>Large-caps have a market capitalization of over $10 billion. They are are very large companies, usually those with a long history and a household name: Apple, Visa, Johnson &amp; Johnson, Walmart. </p><p>They are typically less risky investments, given that they're backed by years of stable earnings and stock price performance. However, as mature corporations, they also usually do not grow very quickly. </p><p>For investors, that means <keyword id="490032" type="PERSON" weightage="60" keywordseo="large-cap-stocks">large-cap stocks</keyword> may bring steady — but not massive — returns. Most <a href="https://www.businessinsider.com/what-are-blue-chip-stocks" target="_blank" rel="noopener">blue-chip stocks</a> are large-caps. </p><h3>Mid-cap valuation</h3><p>Mid-caps have a market capitalization between $2 and $10 billion. They are usually sizable, well-established companies. Some may be familiar names, like American Eagle Outfitters, Lending Tree, and TripAdvisor; others might be less well-known, but are respected and fast-rising in their field, like Peloton or Diamondback Energy. </p><p>As their name suggests, mid-caps occupy a middle ground for investors: They may be riskier than large-caps, but are still relatively safe (certainly more so than the small-caps, from whose ranks they often spring). Their stock can be more volatile than large-caps', but it also may also have more potential for appreciation, as many of these companies are still actively growing. </p><h3>Small-cap valuation</h3><p>Small-cap companies are riskier still. But with a market capitalization between $300 million and $2 billion, they can provide opportunities for major appreciation; in fact, these firms are often the darlings of <a href="https://www.businessinsider.com/growth-investing-definition-strategies" target="_blank" rel="noopener">growth-oriented investors</a>. Getting in on the ground floor of a successful small-cap company can be very lucrative — if you guess right. But it may take time for it to pay off, and unlike the large- or mid-caps, it probably won't be providing much in terms of <a href="https://www.businessinsider.com/what-is-a-dividend" target="_blank" rel="noopener">dividends</a> or other returns in the meanwhile.</p><p>Small-cap companies include Neophotonics Corp., Unisys Corp., and Purple Innovation. </p><h3>Micro-cap and nano-cap valuation</h3><p>Smaller companies can be divided even further. Micro-caps are typically companies that have a market capitalization between $50 million and $300 million. Nano-caps are those with a market capitalization below $50 million. </p><p>These are often very risky investments with lots of <a href="https://www.businessinsider.com/what-is-volatility" target="_blank" rel="noopener">volatility</a>. Most <a href="https://www.businessinsider.com/what-are-penny-stocks">penny stocks</a> fall into the nano- or micro- categories. </p><h2>Why is market capitalization important? </h2><p>Market cap is an important concept because it allows investors to understand the size of a company and how much its worth on the market. Since companies of different market-cap sizes vary in terms of their growth potential, income payments, and risk, spreading your investments among them is one way to <a href="https://www.businessinsider.com/how-to-diversify-portfolio" target="_blank" rel="noopener">balance your portfolio</a> between appreciation and income, between conservative and aggressive.</p><p>Often, investors focus on a particular market cap segment. Some may choose to stick with the big, stable, large-caps — especially if they want to preserve their capital or derive income from their investments. Others may be attracted to the more volatile — and exciting — small-caps, especially if they have a long time horizon to weather volatility or like aggressive growth stocks.</p><p>Cutting across industries and industrial sectors, each market cap group encompasses a big variety of companies and stocks. Still, analysts do note common tendencies and characteristics among stocks of similar market caps.</p><p>For example, <a href="https://www.creighton.edu/faculty-directory-profile/2010/robert-johnson" target="_blank" rel="noopener">Robert R. Johnson</a>, Professor of <keyword id="25455" type="ORGANIZATION" weightage="100" keywordseo="finance">Finance</keyword> at Creighton University, notes that small-caps may be more volatile than mid- and large-caps — but they tend to perform better. </p><p>"From 1926 to 2019, large-cap stocks have provided average returns of 10.2% annually; small-cap stocks over the same time period provided annual returns of 11.9%," he says. </p><p>It doesn't sound like much in percentage terms. However, "over many years, that difference is enormous: one dollar invested in large-caps at the end of 1925, with dividends reinvested, would have grown to $9,243.90. That same dollar invested in small-caps would have grown to $39,380.90.," Johnson notes.</p><p>"The bottom line is that small-cap stocks provide higher returns, on average — but that comes at the cost of greater risk."</p><h2>Market capitalization vs. market value</h2><p>You'll sometimes hear "market capitalization" used interchangeably with "market value." But they don't mean the same thing. Whereas market capitalization is a single, easy-to-calculate figure, market value is a more complex, amorphous characteristic that we try to estimate in a number of ways. </p><p>As <a href="https://firstratedata.com/" target="_blank" rel="noopener">Ryan Maxwell</a>, COO at FirstRate Data, notes, "market value" is a generic term that refers to the value of an investment (such as a company's stock) as determined by a market (usually, the stock market). Reflecting investor sentiment, it might take into account company assets, fundamentals, and other factors. </p><p>For example, Maxwell says, a company's enterprise value is another specific measure of a company's market value, one that considers its debt as well as its stock. </p><p>Alongside market capitalization and enterprise valuation, investors will often use ratios such as price-to-earnings ratio, price-to-sales ratios, and return on equity to compare values between companies. </p><p>"Everyone is working to measure a company's true market value," <a href="https://www.magnifina.com/" target="_blank" rel="noopener">Asher Rogovy</a>, Chief Investment Officer at Magnifina, says. "Whoever understands the true value can profit by trading mispriced stocks. Market capitalization represents how investors, on average, estimate true market value. It's one indicator of market value and a great starting point for analysis."</p><h2>The financial takeaway</h2><p>Market capitalization is a way to measure what a company's worth is. Essentially the collective price of all of a company's outstanding shares, market capitalization tells us about the value that investors put on a company's stock. </p><p>And<em> that </em>tells us, indirectly, about what we can expect from the company in terms of returns. </p><p>Companies with lower market capitalization values may be riskier but can pay off big. Companies with greater market capitalizations probably will preserve your funds, but may not offer massive gains. </p><p>If you're a more conservative investor, you may lean towards large-caps. And if you're looking for more of a gamble, small-caps might be for you. If you want a balance in your portfolio — appreciation plus income — the mid-caps may be the way to go.</p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing</a>:</h2><h3><a href="https://www.businessinsider.com/what-is-common-stock" target="_blank" rel="noopener">What is common stock? The most typical way to invest in a company and profit from its growth</a></h3><h3><a href="https://www.businessinsider.com/how-to-diversify-portfolio" target="_blank" rel="noopener">How to diversify your portfolio to limit losses and guard against risk</a></h3><h3><a href="https://www.businessinsider.com/how-to-invest-in-penny-stocks" target="_blank" rel="noopener">How to invest in penny stocks: a guide for beginners</a></h3><h3><a href="https://www.businessinsider.com/what-is-common-stock" target="_blank" rel="noopener">What is common stock? The most typical way to invest in a company and profit from its growth</a></h3><h3><a href="https://www.businessinsider.com/what-is-a-stock-split" target="_blank" rel="noopener">What is a stock split, and is it a good or bad sign when it happens?</a></h3>

Market capitalization tells you how much a company is worth, and whether buying its stock suits your overall investing strategy

<ul class="summary-list"><li>Small-cap stocks ("small-caps") are companies that have a <keyword id="547891" type="PERSON" weightage="60" keywordseo="market-capitalization">market capitalization</keyword> value between $300 million and $2 billion.</li><li>Small-cap stocks are usually new companies, those who are focused on a niche market, or those that are struggling financially.</li><li>Small-caps stocks are volatile, risky, and rarely offer dividends, but they have massive growth potential and are often undervalued.</li></ul><p>Small-caps are a source for much of the excitement in the stock market.</p><p>Small-caps (short for "small capitalization") are companies with a <a href="https://www.businessinsider.com/what-is-market-cap" target="_blank" rel="noopener">market capitalization</a> south of $2 billion. That may sound like a lot, but that figure makes them fledglings in the financial world. They are often young companies with massive room for growth. </p><p>But not all small-caps are newcomers. While small-cap companies have the potential to grow into <a href="https://www.businessinsider.com/what-is-a-mid-cap-stock">mid-cap</a> or <a href="https://www.businessinsider.com/what-is-a-large-cap-stock" target="_blank" rel="noopener">large-cap companies</a>, it works both ways. If a mid-cap or large-cap company sees economic and business challenges that cause them to lose value, they can become small-caps.  </p><p>Because they're often expanding fast, you'll often see the biggest price gains coming from companies in the small-cap category - as a group, small-caps tend to perform well, But betting on any individual company is especially risky. Many small-cap companies never quite make it off the ground or fulfill their early promise. </p><p>Is that risk worth the reward for you? Here's what you should know about small-caps. </p><h2>What are small-cap stocks?</h2><p>Market capitalization ("market cap" for short) is the total dollar value of all a company's stock. A small-cap stock is generally classified as one whose market cap is between $300 million and $2 billion.</p><p>It's a diverse group, in several ways. For one thing, companies within it belong to a variety of industries, ranging from the traditional to the high-tech. Many focus on a particular niche within a sector.</p><p>Some of the better-known small-caps include:</p><ul><li>Denny's Corp, the family restaurant chain</li><li>Eventbrite, the event management SaaS company</li><li>Energy Recovery Inc., a company that manufactures fluid flow systems</li><li>Rhythm Pharmaceuticals, a drug manufacturer </li><li>FitBit Inc., makers of wearable fitness devices</li></ul><p>Because of their potential for substantial appreciation, small-cap stocks often overlap with growth stocks - companies on a fast track, who are outperforming the market overall in terms of return.</p><p>But they're not all bright young things. Some are "fallen angels," as the financial pros like to say - once larger companies whose revenues have waned of late. Some may have shrunk deliberately, to better focus on their core business or a particular market. But some may be struggling or even on the brink of bankruptcy.</p><h2>Characteristics of small-cap companies</h2><p>Small-caps are a highly varied group, but they tend to share some similarities.</p><ul><li><strong>They're - you guessed it - little guys.</strong> These companies are often limited in size or outreach or both. They may be regional or not yet well-established in the field. That means they have lots of room to grow, but also lots of room to fail. They may also become acquisition targets for larger corporations.</li><li><strong>They rarely provide income. </strong>Many small-caps don't pay <a href="https://www.businessinsider.com/what-is-dividend-yield" target="_blank" rel="noopener">dividends</a>, preferring to reinvest their profits back into the company for further growth. They're not a great choice for income investors.</li><li><strong>They're volatile.</strong> Many small-cap stocks attract excitement - but not a lot of actual investors (yet). Their trading volume is low. That, along with their general lack of track record, means they tend to see large or sudden swings in price. </li></ul><h2>What can investors expect from small-cap stocks?</h2><p>The one predictable thing about small caps is their unpredictability.</p><p>"Small-cap stocks can have significant growth potential and often remain undervalued by the market," says <a href="https://www.magnifina.com/" target="_blank" rel="noopener">Asher Rogovy</a>, chief investment officer at Magnifina, a portfolio management firm. In fact, small-caps have historically performed quite well over the long-term, even better than <keyword id="490032" type="PERSON" weightage="60" keywordseo="large-cap-stocks">large-cap stocks</keyword>, whose big-growth days are behind them (though they do still appreciate). </p><p>In fact, according to <a href="https://www.creighton.edu/faculty-directory-profile/2010/robert-johnson" target="_blank" rel="noopener">Dr. Robert R. Johnson</a>, professor of finance at Creighton University, from 1926 to 2019, small caps have provided investors with an average of 11.6% annual returns-beating the 10.2% annual returns provided by large-caps. </p><p>But as a rule, small-caps are much higher-risk than large-caps. The problem is the <a href="https://www.businessinsider.com/what-is-volatility" target="_blank" rel="noopener">volatility</a> - the large swings in stock price. Sometimes those swings go in your favor and you can win big. But you could lose big, too. </p><p>Over the years, you may well come out ahead, but it could be a stomach-churning ride along the way. And the timing could be tricky if you need to cash in for a specific financial need or emergency. </p><h3>Small-caps may be getting more scarce</h3><p>Exciting small-caps may not be easy to find as they used to be. "Today, a fast-growing company will often not go public until it reaches a medium size," says <a href="https://digitalhorizon.vc/en/" target="_blank" rel="noopener">Alan Vaksman</a>, co-founder of tech-oriented investment company Digital Horizon. "Companies can afford to stay private attracting, for example, venture capital investments." Or using <a href="https://www.businessinsider.com/equity-crowdfunding" target="_blank" rel="noopener">crowdfunding platforms</a> for financing. </p><p>Case in point: Airbnb (<a href="https://markets.businessinsider.com/stocks/abnb-stock" target="_blank" rel="noopener">ABNB</a>), which went public in December 2020. The home-rental company stayed private until it had massive revenues. And then when it held its IPO, it jumped right to the ranks of the large caps, with a capitalization of over $90 billion. So it skipped the small-cap step.</p><p>As a result of these trends, "now the small-cap segment is filled with small traditional businesses, like local banks and insurance companies, manufacturers, and so on," Vaksman adds. "Their potential growth is more limited."</p><h2> The financial takeaway</h2><p>Small-caps have some of the highest rates of growth among stocks, which is what makes them so attractive. But they also are more volatile, with an untried track record - or a troubled one. All this poses a greater risk for investors. </p><p>Because of the massive diversity in small-cap companies, <a href="http://www.accessfinancialplanning.com/" target="_blank" rel="noopener">Tricia Rosen</a>, principal at Access Financial Planning, suggests doing your due diligence.</p><p>"Ask yourself <em>why</em> a company is a small-cap before investing in it," Rosen recommends. "Is it just starting? Is it struggling and shrinking in size? Is it projected to stay small with steady performance? The appropriate investor for each situation may be different even though each is a small-cap."</p><p>If you're looking for stable investments, you're probably not in the market for small-caps. But if you're seriously looking for the Apples and Amazons of tomorrow, some small-cap speculation - carefully considered, of course - might be for you.</p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing</a>:</h2><h3><a href="https://www.businessinsider.com/what-is-common-stock" target="_blank" rel="noopener">What is common stock? The most typical way to invest in a company and profit from its growth</a></h3><h3><a href="https://www.businessinsider.com/how-to-diversify-portfolio" target="_blank" rel="noopener">How to diversify your portfolio to limit losses and guard against risk</a></h3><h3><a href="https://www.businessinsider.com/value-investing-definition" target="_blank" rel="noopener">Value investing is a bargain-hunting strategy that targets low-performing but quality stocks, aiming to profit when their prices rise again</a><a href="https://www.businessinsider.com/how-to-invest-in-penny-stocks" target="_blank" rel="noopener"></a></h3><h3><a href="https://www.businessinsider.com/how-to-invest-in-dividend-stocks" target="_blank" rel="noopener">How to invest in dividend stocks, a low-risk source of investment income</a></h3><h3><a href="https://www.businessinsider.com/what-is-a-stock-split" target="_blank" rel="noopener">What is a stock split, and is it a good or bad sign when it happens?</a></h3>

What is a small-cap stock? A company worth under $2 billion with massive growth potential for investors

<ul><li><strong><keyword id="151304" type="CITY" weightage="60" keywordseo="Jefferies">Jefferies</keyword>' <keyword id="2819189" type="PERSON" weightage="60" keywordseo="Steven-DeSanctis">Steven DeSanctis</keyword> said the <a href="https://markets.businessinsider.com/index/russell_2000">Russell 2000 small-cap index</a> could gain 12.5% next year to reach 2050. It's one of the most bullish forecasts he's made since 2003.</strong></li><li><strong>The strategist explained that recovering GDP, increased M&amp;A activity, strong earnings, and a weaker dollar will all aid small-cap performance next year.</strong></li></ul><ul><li><strong>Small-cap stocks could even outperform <keyword id="490032" type="PERSON" weightage="60" keywordseo="large-cap-stocks">large-cap stocks</keyword> in 2021, DeSanctis said.</strong></li></ul><ul><li><strong>His forecast comes after the <keyword id="1742274" type="PERSON" weightage="60" keywordseo="Russell-2000">Russell 2000</keyword> posted its highest-performing month ever. The small-cap index gained 18.29% in November.</strong></li></ul><ul><li><a href="https://www.businessinsider.com/international?r=US&amp;IR=T?utm_source=markets&amp;utm_medium=ingestm=ingest"><strong>Visit Business Insider's homepage for more stories</strong></a><strong>.</strong></li></ul><p>Small-cap stocks are set to make a big comeback in 2021, according to Jefferies' Steven DeSanctis. The small and mid-cap strategist forecasts that the <a href="https://markets.businessinsider.com/index/russell_2000">Russell 2000</a> will rise 12.5% to 2050 next year. It's one of the most bullish calls his team has made since 2003. <br /><br />If they're correct, next year would be the first time since 2016 that small-caps beat large-caps. DeSanctis estimates that small will beat large by 6.4%.</p><p>In a Tuesday note to clients, DeSanctis laid out a number of reasons why 2021 has a positive backdrop for small stocks. The Jefferies US GDP forecast is at 4%, and with GDP at that level, small stocks have gained nearly 17%, said DeSanctis. He also said M&amp;A activity will pick up next year, and the dollar will weaken, and this will aid small-caps. Jefferies expects small-caps earnings to grow 40% in 2021. </p><p>The strategist added that small-caps recovered impressively off their lows from the pandemic-induced crash in the spring. The Russell 2000 has gained over 80% since its lowest point in March. </p><p><em><strong>Read more:</strong><a href="https://www.businessinsider.com/stock-picks-18-companies-factor-etfs-blackrock-overweight-momentum-size-2020-12">BlackRock is channeling more cash to high-momentum and relatively small stocks as the economy recovers. These are the 20 companies they're earmarking the most money for.</a></em></p><p>DeSanctis also noted that small-cap stocks just had their best month of all time in November as vaccine progress pushed investors into beaten-down segments of the market. The Russell 2000 gained 18.29% in November, its highest performing month since its inception in 1984. </p><p>Because of this November rally, DeSanctis said there may be a pullback between 5% and 10%  in the near-term before momentum picks back up in 2021. <br /><br />"It was a November to remember with Russell putting in its best showing EVER. This comes after one of the biggest/fastest draw downs ever. When small has bounced as much as it has, the good times keep rolling," he said. "We would like to see 'The pause that refreshes' with a pullback of 5% to 10%."</p><p>The strategist added he's watching the IPO calendar, as it's over-heated and that could be a risk for small-cap performance going forward.</p><p>DeSanctis has an overweight rating for industrials, materials, health care, and real estate.</p>

A top Wall Street strategist breaks down why small-cap stocks could gain 12.5% next year in one of his most bullish forecasts since 2003

<ul><li><strong>David Kostin spoke to the Exchanges at Goldman Sachs podcast about the two big risks of technology's record market dominance. </strong></li></ul><ul><li><strong>Goldman's chief equity strategist said that positioning limits in mutual funds and looming antitrust legislation pose risks for those looking to invest in technology. </strong></li></ul><ul><li><strong>However, he recommended investors add growth in their portfolios through technology as part of a strategy he discussed. Large companies with strong balance sheets are leading the <keyword id="123873" type="PERSON" weightage="60" keywordseo="SP-500">S&amp;P 500</keyword>'s rally, according to Kostin. </strong></li><li><a href="https://www.businessinsider.com/?hprecirc-bullet"><strong>Visit Business Insider's homepage for more stories</strong></a><strong style="color: #222222;">.</strong></li></ul><p>Almost a quarter of the market capitalization of the S&amp;P 500 is comprised of just five tech companies, and while this poses risks, it hasn't stopped Goldman Sach's David Kostin from recommending investors buy big tech.</p><p>The chief US equity strategist outlined "two big risks" involved with tech's record levels of market capitalization, and how investors should position given these risks on <a href="https://www.goldmansachs.com/insights/podcasts/episodes/08-19-2020-david-kostin.html">last Wednesday's episode</a> of the Exchanges at Goldman Sachs podcast.  </p><p>Kostin said the first risk is that many mutual funds must limit a single stock position to around 5% of the fund's assets. This is an issue because the market breadth is extremely narrow. Kostin said the five largest <keyword id="6354298" type="DEFINITION" weightage="60" keywordseo="Stocks">stocks</keyword> collectively are up 41% year-to-date, but the other 495 stocks are down 2% for the same period.</p><p>"This narrow breadth market led by a few companies that are now pushing up against a limit as to what many mutual fund managers can hold is an issue," Kostin said. <br /><br />The second concern is looming antitrust legislation for big tech companies. Kostin said that 20 years ago when the Justice Department filed actions against the dot-com bubble tech giants AT&amp;T, IBM, and Microsoft, the revenue growth of the companies slowed dramatically and valuations compressed. Now given the market concentration, "a quarter of the market is at potential risk" for this, he said. Kostin emphasized he is not forecasting that there will be antitrust legislation, but only stating that it is a risk. </p><p><em><strong>Read more:</strong> <a href="https://www.businessinsider.com/stock-picks-to-buy-investing-strategy-for-trump-election-win-2020-8">RBC says buy these 48 stocks spanning every industry that are poised to crush the market if Donald Trump wins reelection</a></em></p><p>Still, the stock chief is recommending investors buy technology stocks as part of a strategy he discussed.</p><p>"The portfolio we recommend as a strategy has growth in it through technology, benefiting from low interest rates," he said. He also recommended investors add industrials into the portfolio for cyclical benefits, as well as utilities for extra yield.  </p><p>Goldman Sachs held a forecast of 3,400 for the S&amp;P 500 in January, and now Kostin said the firm has raised the year-end forecast to 3,600. Kostin added he's forecasting the index will reach 3,800 within 12 months.</p><p>But the market's record highs are driven by large companies with strong balance sheets, while smaller companies are still struggling. Stronger balance sheet stocks this year have outperformed weaker balance sheet companies by about 30 percentage points, Kostin said. </p><p>"It's an interesting observation that if the investor community really believed that the economy was in a healing way, and getting better, and a vaccine was on the horizon and things were getting better, then smaller cap stocks should do better," he said. </p><p>"Weaker balance sheet companies  should by rallying, but they're not. And so that suggests that investors are still cautious in terms of their overall positioning. And I think that makes sense given the uncertainty on whether it's the election, whether it's the geopolitical situation, the medical situation. For all these reasons larger-cap stocks are likely to do better," Kostin said.</p>

Goldman Sachs US stock chief explains why you should still buy tech even as it faces 2 big risks and record market dominance

<ul class="summary-list"><li>The <keyword id="12569626" type="UNKNOWN" weightage="60" keywordseo="russell-2000" source="Orion">Russell 2000</keyword> is a <keyword id="11895235" type="UNKNOWN" weightage="60" keywordseo="stock-market" source="Orion">stock market</keyword> index made up of 2,000 small-cap US companies.</li><li>It is a widely used performance benchmark for funds that invest in small-cap equities.</li><li>The broad cross section of US-focused companies in the Russell 2000 also makes it a barometer for the economy.</li></ul><p>The Russell 2000 is a stock index that tracks the performance of 2,000 small-capitalization companies and often serves as a measure of the underlying health of the US economy. It comprises the smallest companies included in the broader Russell 3000 Index, and is one of the most widely used benchmarks for funds that invest in small-cap stocks.</p><p>The Russell 2000 accounts for 10% of the market capitalization of the Russell 3000, which represents around 97% of the investable US equity market. Both are operated by <a href="https://www.ftserussell.com/products/indices/russell-us]" target="_blank" rel="noopener">FTSE Russell</a>.</p><h2><strong>How does the Russell 2000 Index work? </strong></h2><p>As with the Russell 3000 and many other equity indexes, the Russell 2000 is weighted by market-capitalization. This means that stocks with greater market value have a proportionally larger impact on the index's overall level.</p><p>To be included in the index, companies must first be part of the Russell 3000, which comprises the 3,000 largest US-traded equities. FTSE Russell then picks the 2,000 smallest stocks from this index, removing such multibillion-dollar corporations as Microsoft, Apple, and Alphabet, leaving the companies that make up what could be considered the 'core' of the US economy. </p><p>"The Russell US indexes were created over 40 years ago and have been a key barometer of the US economy," says Edward Moya, a senior market analyst at New York-based foreign-exchange broker OANDA. "Depending on which stage an economy is in, its expansion cycle might determine whether an investor wants to buy large-cap or small cap-stocks.</p><p><strong>Note:</strong> According to FTSE Russell, the average market cap of <a href="https://content.ftserussell.com/sites/default/files/ru2000_membershiplist_20210628.pdf" target="_blank" rel="noopener">companies in the Russell 2000</a> was $3.594 billion, as of Oct. 31, 2021.</p><p>Some of the largest firms in the index include AMC, Asana, Crocs, and Macys, with market values in the $10 billion-$20 billion range as of November 2021. Conversely, some of the smallest members include biotechnology pharmaceutical companies such as Forte Biosciences and Hookipa Pharma, which had market values of less than $1 billion.</p><h3>Russell 2000 members ranked by market value (November 2021)</h3><table style="border-collapse: collapse; width: 100.909%; height: 395px;" border="1"><tbody><tr><td style="width: 50.3896%;"><p><strong>Largest Russell 2000 companies</strong></p></td><td style="width: 49.4805%;"><p><strong>Smallest Russell 2000 companies</strong></p></td></tr><tr><td style="width: 50.3896%;"><p>Asana — $24.9 billion</p></td><td style="width: 49.4805%;"><p>Forte Biosciences — $47 million</p></td></tr><tr><td style="width: 50.3896%;"><p>AMC Entertainment — $21.9 billion</p></td><td style="width: 49.4805%;"><p>Team Inc.  — $51 million</p></td></tr><tr><td style="width: 50.3896%;"><p>Avis Budget Group — $15.9 billion</p></td><td style="width: 49.4805%;"><p>Spruce Biosciences — $72 million</p></td></tr><tr><td style="width: 50.3896%;"><p>DigitalOcean Holdings — $14.2 billion</p></td><td style="width: 49.4805%;"><p>Medavail Holdings — $74.5 million</p></td></tr><tr><td style="width: 50.3896%;"><p>Lattice Semiconductor — $11.6 billion</p></td><td style="width: 49.4805%;"><p>Acutus Medical — $102 million</p></td></tr><tr><td style="width: 50.3896%;"><p>Crocs — $10.6 billion</p></td><td style="width: 49.4805%;"><p>Hookipa Pharma — $114 million</p></td></tr></tbody></table><h2><strong>How is the Russell 2000 different from other major indexes? </strong></h2><p>Given that it covers a larger number and broader range of companies than the Dow Jones Industrial Average or the S&amp;P 500, the Russell 2000 exhibits slightly different behavior from these and other major market gauges.</p><p>"Small-capitalization stocks tend to be more economically-sensitive and cyclical than large-capitalization stocks," says Ari Wald, a technical analyst at Oppenheimer. "That is, they both rise and fall by a greater magnitude through the ups-and-downs of an economic cycle."</p><p><strong>Quick tip:</strong> While they may have better upside potential, Russell 2000 stocks also can be more volatile and risky, with their performance during the COVID-19 pandemic in particular showing how they can be hit harder than large-cap stocks.</p><p>Another thing to keep in mind is that the Russell 2000 is composed according to different rules than other indexes, including some such as the S&amp;P 600 that track small-cap stocks as well.</p><p>"The S&amp;P 600 has a financial viability requirement for companies, whereas the Russell 2000 does not," says Ross Mayfield, an investment strategy analyst at Baird Wealth. "This can result in a higher percentage of unprofitable companies being included."</p><p>On the flipside, there can be a greater potential for growth, given the smaller size of the average Russell 2000 company. It also tends to be more diverse and broader than other popular small-cap indexes, something that arguably makes it more representative of the 'real' economy.</p><h2><strong>How to invest in the Russell 2000 Index</strong></h2><p>For investors, the Russell 2000 has a number of interrelated uses.</p><p>"Individual investors can gain exposure to the Russell 2000 by mutual funds and exchange-traded funds (ETFs) that attempt to replicate the performance of the index, though it is not possible to invest directly in an index," says Wald.</p><p>While mutual funds tracking the Russell 2000 are available, ETFs are more common. These are some of the largest:</p><ul><li>BlackRock iShares Russell 2000 ETF (IWM)</li><li>Vanguard Russell 2000 ETF (VTWO)</li><li>ProShares UltraPro Russell2000 (URTY)</li></ul><p>Wald also highlights the benefit of using the Russell 2000 as part of a balanced asset allocation process, since owning both small- and large-capitalization stocks can help diversify a portfolio. This especially comes into play at different stages of the economic cycle, with small-cap companies often promising better-than-average returns during upswings, largely because their revenues are concentrated domestically.</p><p>"If the US economic outlook is strong, historically the Russell 2000 Index should perform nicely," Moya says.</p><p>Mayfield points out that the Russell 2000 can be used simply as a benchmark or frame of reference for investors looking to narrow their focus onto more specific areas.</p><p>"It can be used to benchmark performance for active managers, as the underlying index for a passive investment (e.g. exchange-traded fund), or simply as a reference point for an investor who wants a broad gauge of how small cap stocks are doing," he says "Both institutional and retail investors can use the index. Since it is one of the most commonly referenced in the world, nearly everyone who invests in the small cap space might use it or come across it."</p><h2><strong>The financial takeaway</strong></h2><p>The Russell 2000 serves as a benchmark for small-cap funds and a barometer for the overall health of the US economy. Investors, mostly through exchange-traded funds, can use it to gain exposure to the cyclical swings of the US economy, although this carries risks during downturns and recessions.</p><p>As such, investing in the Russell 2000 through an ETF requires a researched understanding of the state of the US economy, and it works well as part of a diversified approach that sees small-cap stocks or funds being balanced out with investment in large-cap alternatives.</p>

The Russell 2000 is a small-cap US stock index that is widely regarded as a bellwether for the economy

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Reuters / Brendan McDermid</span></p></div><p></p></div></div></p><ul><li><strong>Investor nerves have been rattled by the mounting prospect of an all-out global trade war as major US indexes tumble.</strong></li><li><strong>Morgan Stanley has identified one area of the stock market it says will be a safe haven of sorts for traders worried about their equity exposure.</strong></li></ul><p>Fears of an all-out <a href="http://www.businessinsider.com/category/trade-war" target="_blank" rel="noopener">trade war</a> have frazzled investor nerves, as indicated by the <a href="http://markets.businessinsider.com/news/stocks/stocks-down-amid-trump-administration-trade-fights-2018-6-1027315453" target="_blank" rel="noopener">large drops across major US equity indexes</a>.</p><p>But before investors exit the stock market entirely, <a href="http://markets.businessinsider.com/stocks/ms-stock" target="_blank" rel="noopener">Morgan Stanley</a> wants them to know that there is a safe haven of sorts for equities, buried among the market wreckage.</p><p>The stocks in question are known as "<a href="http://www.businessinsider.com/category/small-caps" target="_blank" rel="noopener">small caps</a>," or companies with meager market values, at least relative to benchmarks. Often overlooked when more actively traded mega-cap shares are soaring, Morgan Stanley argues their fundamental picture is compelling.</p><p>First off, since small cap corporations are usually more domestically focused than their larger peers, they're better positioned to benefit from the nationalistic tax cuts afforded by the <a href="http://www.businessinsider.com/category/gop-tax-law" target="_blank" rel="noopener">GOP tax law</a>. Those tax savings trickle down to a company's bottom line, improving the prospects for earnings growth.</p><p>Secondly, Morgan Stanley points out that small caps are also well-positioned to see a positive effect from business-friendly deregulation.</p><p>Largely piggybacking off the boost provided by these two dynamics, small caps have crushed the broader market so far this year. Their dominance can be seen in the chart below, which shows that a pair of small cap indexes (represented by the two blue lines) has dominated the <a href="http://markets.businessinsider.com/index/s&amp;p_500" target="_blank" rel="noopener">S&amp;P 500</a>.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Morgan Stanley</span></p></div><p></p></div></div></p><p>But this conversation is null and void without a discussion of what the market's latest and most threatening flashpoint - the escalating global trade war - means for small caps.</p><p>Luckily for investors considering a small-cap investment, Morgan Stanley finds that they're less vulnerable to what it describes as "anti-trade rhetoric." This once again comes back to the comparatively small international exposure small caps have.</p><p>In the end, small caps feature a compelling trifecta of positive attributes, offering a viable option for investors who want to stay invested in stocks, but want to be less exposed to President <a href="http://www.businessinsider.com/category/donald-trump" target="_blank" rel="noopener">Donald Trump</a>'s latest trade headlines.</p><p>So with all of that established, are small caps <em>still </em>a good bet, despite already destroying benchmarks for much of this year? Morgan Stanley says yes. And it all comes down to growth.</p><p>"While the relative outperformance of small caps we have seen is a lot, forward growth expectations indicate it is likely to continue," Mike Wilson, the firm's chief US equity strategist, wrote in a client note. "The growth<br />differential between small and large caps may be widening even further from here which should extend the relative outperformance."</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Morgan Stanley</span></p></div><p></p></div></div></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/jurassic-world-fallen-kingdom-science-facts-ignored-2018-6">5 science facts that 'Jurassic World: Fallen Kingdom' totally ignored</a></h3>        <div>                    </div>    </div>

You Searched For "small cap investments" and got 8 results

Bryn Mawr's Jeff Mills believes the small-caps boom is only just beginning and 2021 will deliver even bigger gains

Amanda Cooper

Why the stock market's sharp rally off March lows is even stronger than in seems, according to one Wall Street chief strategist

Ben Winck

Market capitalization tells you how much a company is worth, and whether buying its stock suits your overall investing strategy

Ramsay Lewis

What is a small-cap stock? A company worth under $2 billion with massive growth potential for investors

Ramsay Lewis

A top Wall Street strategist breaks down why small-cap stocks could gain 12.5% next year in one of his most bullish forecasts since 2003

Emily Graffeo

Goldman Sachs US stock chief explains why you should still buy tech even as it faces 2 big risks and record market dominance

Emily Graffeo

The Russell 2000 is a small-cap US stock index that is widely regarded as a bellwether for the economy

Simon Chandler

MORGAN STANLEY: Investors worried about a trade war should be flocking to a small corner of the stock market that offers protection

Joe Ciolli

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