While small-capitalization stocks were battered during the first half of the year, microcapitalization stocks actually outperformed large stocks.
In the first six months of 1994, microcap stocks declined 1%, as measured by the Ibbotson Small Stock Index vs. a decline of 3.5% for the Standard & Poor's 500 Stock Index.
According to a report by Merrill Lynch & Co., New York, which looked at the performance of large, midcap, small and microcap stocks, "interestingly the best performing size group for the first half of this year has not been large stocks; instead the microcap group has been the best of the lot."
This phenomenon supports Merrill's contention that the small-cap underperformance merely represents a temporary flight to quality and not the beginning of a new cycle favoring large-cap stocks, according to the report.
"The relative stability among microcap stocks, traditionally higher volatility stocks, suggests investors are willing to hold on to their small-stock exposure. They may be more concerned with the general illiquidity of their stocks and are less willing to pay the cost of exiting only to re-enter soon after. If this were an end-of-cycle period, one would expect the microcap stocks to lead the way in the general market weakness," the report said.
