Mary Lisanti, vice president-global investment management of Bankers Trust Co., New York, and portfolio manager of $900 million in small- and midcap stocks, foresees a decade-long run in small stocks on the horizon after what she says is a short-term correction.
In the past nine years, six corrections in small-cap stocks have lasted on average from three to six months, with market declines of 5% to 20%. "This correction started in mid-March. It's now the end of August and it's not as deep," she said.
A number of fundamental changes might bode well for smaller companies.
"The collapse of the Soviet Union and the rise of China and Latin America may play to small-cap agility. Technology is the great leveler. There's no need to be big anymore. There are strategic alliances in different parts of the world. In the '90s, the race may go to the swift, not the big."
Another factor that will benefit small stocks is a rise in demand from investors.
"Pension funds like everyone else are under represented in small caps .*.*. We will see more interest in small cap from institutions. The market is somewhat illiquid. Small changes in demand can have a big impact on stock prices," she said.
"Only 10% of U.S. stock investors are in small cap," leaving lots of room for growth, she said.