Size Matters

The big story of Q4 2020 is not sector rotation and it’s not Value > Growth (even though your favorite financial news network may paint it that way). The real story is a rotation away from Largecaps and into Smallcap stocks. Independent of both sector and of the growth/value style factor. Sure, QTD Largecap Energy and Financials are leading both Technology and Consumer Discretionary - but what about the Smallcaps? The Russell 2000 is outperforming the S&P 500 by nearly 3x QTD and in early December, surpassed the benchmark US stock index in YTD performance as well. In the Largecap universe, the sectors that underperformed in Q1-Q3 are now outperforming in Q4. Is this the case in Smallcaps as well? Not quite. Smallcap Technology continues to lead both Financials and Industrials. The Financials sector is also nearing new lows relative to Smallcap Technology. It’s important to note, this does not fit with the Value > Growth narrative.

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