Technology and small-cap stocks have the best potential but are also more vulnerable when the overall market moves lower.
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New York, NY (PRWEB) November 03, 2012
In a recent Investment Contrarians article, editor George Leong reports that the tech-laden NASDAQ is tops, with a 14.8% advance this year, but it is now leading the losers, with a 3.3% decline since the end of the first quarter. (Source: NASDAQ, last accessed November 1, 2012.) He adds that the small-cap Russell 2000 is down 1.7% since the end of the first quarter. (Source: “Key Market Internals,” Option Pundit, last accessed November 1, 2012.) Yet, according to Leong, small-cap stocks are looking more attractive, with the encouraging signs of the economy’s recovery helping to attract buying to small-cap stocks, which generally perform better as the economy recovers from a recession.
“Technology and small-cap stocks have the best potential but are also more vulnerable when the overall market moves lower,” explains Leong. “In 2011, small-caps underperformed. [Investors] would have done better investing in a Treasury Bill versus small-cap stocks, which were negative in 2011 after advancing 25.3% in 2010.”
But, with signs of economic recovery, Leong continues to favor small-cap stocks, as he believes that they can increase the expected return of a portfolio by simply adding more risk.
As the Investment Contrarians expert explains, “A standard and simple measure of stock risk versus the market is a beta—a quantitative measure of systematic or market risk that cannot be diversified away and generally moves in relation to the S&P 500 or another market/benchmark.”
Leong notes that a beta of less than one implies a stock has less risk than the market and, hence, lower expected returns, whereas a beta of greater than one implies a higher comparative risk versus the market, meaning possible higher expected returns.
“When there’s a stock market rally, high beta stocks will tend to fare better,” states Leong, warning that buying only higher beta stocks does not necessarily translate into higher returns, as it also results in greater volatility and downside risk when the broader market declines.
According to the Investment Contrarians expert, the most important fact to understand is that adding small-cap stocks to a portfolio can increase its risk-reward profile.
“If the global and U.S. economies show renewed growth, look to small-cap stocks to outperform,” concludes Leong.
To see the full article, and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.
Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing, and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work, and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.
After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.
Investment Contrarians provides unbiased research. They are independent analysts who love to research and comment on the economy and investing. The e-newsletter’s parent company, Lombardi Publishing Corporation, has been in business since 1986. Combined, their economists and analysts have over 100 years of investment experience.
Find out where Investment Contrarians editors see the risks and opportunities for investors in 2012 at http://www.investmentcontrarians.com.
George Leong, B. Comm., one of the lead editorial contributors at Investment Contrarians, has just released, “A Problem 23 Times Bigger Than Greece,” a breakthrough video where George details the risk of an economy set to implode that is 23 times bigger than Greece’s economy! To see the video, visit http://www.investmentcontrarians.com/press.