For most of the last 7 years, Small Cap percentage returns have far outperformed Large Caps. Much of that time, Large Cap managers have been trying to convince anyone that will listen that now is the time for Large Caps to take their rightful place at the top. With no shame for how many years they have repeated that nonsense and been wrong, they are saying this louder and prouder lately. Given that the 504 Large Cap stocks I follow represent 78% of the total market cap covered by the HEDGEfolios universe, they are extremely important. It’s no wonder that investors keep paying attention to this story and their Large Cap dreams.

Richard Bernstein, Merrill Lynch’s Chief Investment Strategist suggested that Large Caps will outperform as we head into a more volatile market. Sounds good, except for the fact that when Small Caps started their outperformance the market was highly volatile. Other strategists have suggested that the low US dollar will benefit Large Cap stocks who have a higher percentage of overseas operations and therefore, get a bump in earnings due to currency issues. I laugh at that one too. Just pull up the USD index for the past 7 years and you’ll see that the Small Caps have outperformed regardless of the dollar being strong or weak and whether it was strengthening or weakening. And if the dollar finally starts to rise off the recent low levels, how will that work with their argument?

Of the 504 Large Caps in HEDGEfolios, I have DOWN signals on 71% of them. Until I see that situation reverse, I will not go along with the Large Cap dreams. There are many good stocks in this bunch but that in itself does not guarantee they will provide higher percentage returns than Small or Mid Caps. Changes in the currency rates or increasing volatility or whatever other factors the Large Cap investors want to push is evidence of nothing. Please evaluate each stock on its own merits and don’t get hung up on the idea that one group will outperform the other.