The dominance of large-capitalization stocks is waning, according to the Enterprise Group of funds, Atlanta.
Using figures from Lipper Analytical Services Inc., Enterprise's research found that as of the end of March, Standard & Poor's 500 Stock Index mutual funds led the performance in Lipper's capital appreciation group 9.6% to 6.6%, a margin of 45%. By the first week of July, the gap had narrowed to 21.96% to 18.79%, a difference of about 17%.
Michael Powers, a portfolio manager of the Enterprise Capital Appreciation Fund, said something similar happened from 1988 to 1991. When the economy started to slow, investors at first flocked to major companies. But before long, these companies' prices were bid up so high their values came into question. Smaller companies were growing faster at better relative valuations.
In the past three years, earnings per share of stocks in the Enterprise Capital Appreciation Fund have increased 30% per year, compared with 12% for S&P companies; sales were up 22% a year vs. the S&P's 2.5%, yet their price-earnings multiple was only modestly higher, 18 vs. 16.
"Anomalies on that scale can't last. Either the rapid growers catch up or the slower growers decline," Mr. Powers said.
He said these faster growing companies are not necessarily small-cap stocks, but midsized companies such as Intel Corp.