Small Caps Poised to Outperform
Currently it appears that smaller capitalization stocks may be positioned for higher returns than their larger counterparts. As fundamentals and valuation both seem to be aligned, small caps may be able to reverse a multiyear period of underperformance.​

FactSet December 2018 Chart Showing Small Cap Growing Faster than Large Caps ​

  • Over the next two years, small cap earnings per share growth is forecasted to double that of large caps. This would be a significant change from the past several years when the earnings growth of small caps and large caps were similar. (In spite of this, small caps underperformed during the past few years due possibly to investor pessimism driven by recessionary fears.)

  • Additionally, given the faster economic growth of the U.S. compared to the rest of the developed world, small caps’ greater domestic exposure relative to large caps (79% vs. 64%) may be an advantage.
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  • Small cap stocks are also attractively valued when one compares the price-to-earnings (P/E) multiple of the Russell 1000 and Russell 2000 indexes; the P/E multiple premium of the Russell 2000 index relative to the Russell 1000 is the lowest it has been in a decade.1

  • In contrast to the past few years, small cap stocks have historically tended to outperform large cap stocks (see Alger On the Money “Looking for Higher Returns?​”).

1The price-to-earnings (P/E) multiple is a ratio for valuing a company that measures its current share price relative to its earnings per share.​


The views expressed are the views of Fred Alger Management, Inc. as of March 2019. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

​This material must be accompanied by t​he most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.

The Russell 1000 Index is an index of approximately 1,000 of the largest companies in the U.S. equity market. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. Investors cannot invest directly in an index. Index performance does not reflect the deduction for fees, expenses, or taxes.​​

​Risk Disclosures: Investing in the stock market involves risks, and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments.​

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