What about combining of these two factors, The January Effect in small-caps and the Presidential Cycle?
The note made the stock one of the most active small-caps of the week.
So as long as this current rally holds, I think small-caps will continue to outperform.
But these reasons are also why small-caps offer better potential for growth over the long term.
In terms of relative valuation these days, large-caps are historically quite cheap, versus small-caps.
In May 2010, small-caps led, as they have historically done out of recessionary periods.
Most of the funds ranked as buys that month were some variation on small-caps, primarily small-cap value.
Another chart shows that whenever money-supply growth has exceeded gross domestic product growth, small-caps tend to rise.
Moreover, small-caps have fallen some 10 to 15% in the recent market correction that began last March.
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Rally days are broad based and tend to favor small-caps, a good sign.
In this rally, gains in small-caps have been the largest and Oberweis' rapid growers have been on a tear.
Historically the first to bear the brunt of a bad economy, small-caps are often the first to bounce back.
His argument goes like this: Small-caps have outperformed large-caps between 1926 and 2011.
Focusing on small-caps follows the same logic as many modern travel guides: avoid the big tourist centers to capture a country's essence.
Research has also shown that screening for small-caps down significantly from their highs in mid-December respond the best to the January Effect.
Small-caps could enjoy a strong 2013 and beyond, given cheap valuations, cash rich balance sheets and an expected reacceleration in earnings growth.
So-called microcaps (the smallest of the small-caps) historically produce even better results.
When small-caps beat large-caps in January, the average historical performance for the entire year has been more than 19.0% versus 11.8% for large-caps.
However, Buckingham thinks small-caps have had their run over the last 12 months and now finds bargains in large and megacaps such as Microsoft.
Special Offer: Small-caps have beaten large-caps for the past six years.
Small-caps have always been seen as more risky bets than large-caps.
Based strictly on valuation, small-caps probably have more room to run.
But the sharp selloff in small-caps tells me that investors may be taking an especially cautious stance on these stocks heading into their respective earnings reports.
Historically small-caps outperformed large-caps in 80% of all Januaries by 3 percentage points per year (small-caps being defined as the bottom 30% of stocks market cap weighted).
Not only that, the gain in stocks was fairly broad-based with large-caps, mid-caps and small-caps all showing strong moves, and virtually all sectors up in double digits.
Take for example how attractive small-caps have become: the price earnings ratio for the Russell 2000 small-cap benchmark was recently 12.6x versus its long-term average of 15.4x.
In some cases--Internet stocks or Japanese small-caps, for example--they don't.
Devault says that until proven otherwise in the longer term, value funds should still trump growth--and with a bit less conviction he says that small-caps should still outpace large-caps.
Small-caps often do not to have the diverse revenue streams or stable cash flows that allow them to weather a difficult economic environment as well as their larger-cap counter parts.
The fundamental reason for this tendency is tax sensitive investors (mostly individual retail investors) sell small-caps to lock in year-end tax losses, then reinvest their portfolio in the New Year.
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