The outperformance of high risk assets has been notable this year. The Russell 2,000 small cap index is now up an astonishing 25% from the February lows and up 15% in just the first four months of 2010. Meanwhile, the S&P 500 is up 15% from the February low and up 8% year to date. The discrepancy between small caps or higher beta stocks hasn’t been this notable since just before the market crash of 2008 when investors were complacently pouring into small caps and ignoring various market risks. Over the following 6 months the Russell 2,000 proceeded to lose 55% while the S&P lost 45%.
Disclosure: Author is short Russell 2,000 and long S&P 500.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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