Are Large-Caps Making a Comeback?

Chart of the Week for October 20-26, 2006

Since the year 2000, small-caps have been outperforming large-caps in domestic equity markets. So far this year, small-caps, represented by the S&P Small-Cap 600 Index, are still leading in performance against large-caps, represented by the S&P 500 Index.

Taking a deeper look, year-to-date performance for small-cap stocks is mainly driven by a strong first quarter return of 13%. During the following two quarters however, small-cap stocks lost their momentum while large-caps rallied as shown in the chart above. Large-caps also outperformed mid-caps in the second and third quarters.

Analysts cite several reasons for the resurgence of large-cap stocks. Some believe that companies with larger capitalizations enjoy economies of scale, making them better prepared to weather the storm of an economic slowdown. In addition, large-cap companies are often global multi-national firms, positioned to benefit from growth of the international economy while withstanding shocks to domestic markets.

Whether or not large-cap stocks continue to outperform small-caps through year end, it’s important for investors to keep a long-term focus and diversify among asset classes since capital markets fluctuate and can be hard to predict.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.