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Good things come in small packages



December 15, 2008 – Comments (0) | RELATED TICKERS: PZI , FDM


This morning I have given the green thumb to two ETFs that track the performance of micro-cap stocks, PowerShares Zacks Micro-Cap (PZI) and First Trust Dow Select Micro Cap (FDM).  Hmmmm, stock in tiny companies seems pretty ricky right?  Not really.  Here's why I added them to my CAPS portfolio.

According to an outstanding blog post that I came across this weekend titled The January Effect After Really Bad Years In Stocks studies have shown that small cap stocks historically optperform the general market in the month of January.  Simply purchasing a basket of the smallest 20% of stocks every January since 1927 putting your money under your mattress for the rest of the year would have resulted in annual returns of around 10%.  Compare this to the 1.5% return that the largest 10% of stocks would have provided by using the same technique.

Let's see, a strategy that has worked 90% of the time since 1927, worked in 16 of the last 17 consecutive years, and works even better in bear markets (in the ten worst years during this time period this strategy has resulted in an average gain of +18.17%).  Sign me up.


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