Valuations point to a constructive outlook for small-cap stocks

Valuations on small-cap stocks, though not yet cheap, are much more attractive entering 2015 than they were in 2014. Francis X. Morris and Christopher Beck outline their takes on small-cap stocks’ relative appeal.

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constructive when we talk about valuations that we go back and look at what happened during 2014 so when we entered 2014 given the strong performance that we had during most of 2013 with small caps were up close to 40% valuations coming into 14 we're at the upper end of historical the historical range and they maintain that fight throughout most of the year it wasn't until the 4th quarter beginning of the 4th quarter where valuations actually corrected to a point where they were becoming attractive versus historical ranges now it's becoming 2:15 with sitting here having had a nice rally during the fourth quarter with small caps up no close to 10% and that now you're sitting here with valuations which are not cheap not expensive and so and particularly when you look at the relative to logic so throughout most of last year small calves were expensive relative to watch caps now that has come somewhat back to wear more neutral territory the evaluations for small caps are improve versus what they were a year ago hope you a couple reasons that I'll get into for that but the first thing we have to go back to his 2013 which was a very strong year for all the domestic market indices weather was small. Large value core or growth they all had very strong years now that you're small cap outperform large-cap by 7 percentage points so we came into 2014 knowing that there was a preemie evaluation small-caps higher-than-average so we were somewhat cautious and terms evaluation last year 2014 large cap stocks you had a much stronger performance than small caps so I brought down and evaluation premium making small caps look relatively more attractive than they were a year ago while I'm still not willing to say the small caps are cheap for a large caps they have a much better valuation to did versus a year ago at this time

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