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Small-caps outperform large-cap stocks by 84 basis points in January

Small-cap stocks continued their historical trend of outperformance during the month of January, as the Russell 2000 index posted a total return of 6.26% for the month, compared to 5.42% for the large-cap Russell 1000 index. Some investors strongly believe in the small-cap "January effect" as a way to generate alpha based on the historical outperformance these securities exhibit. Others argue that outperformance is driven by movements in microcap stocks, which push small-cap indexes higher, but are unlikely to translate to higher fund returns because of illiquidity and higher trading costs. The Russell Microcap index returned 6.05% during the month.