Alpha-hungry institutional investors are finding satisfaction in the lighter fare of microcap equities or super-sizing with megacap offerings.
Microcap equity strategies have become a popular alternative to the slightly larger small-cap offerings, many of which have closed recently because of capacity constraints, said Robert Wilk, chief investment officer at Mellon Equity Associates LLP, a subsidiary of Mellon Financial Corp., Pittsburgh.
And after several years of listless performance, megacap strategies are coming into their own, too, as valuations among big corporations become more attractive.
Money managers define microcap stocks differently. Most strategies invest in companies with market caps that range anywhere from $10 million to $500 million, but some firms like Mellon include companies with market capitalizations of up to $1 billion.
The Russell Microcap index has beaten the Russell 2000 small-cap index by an annualized 2.3 percentage points over the five years ended July 31. For the 12-months ended July 31, however, the Microcap index returned 2.8%, compared with a 4.24% gain by the Russell 2000.
On the other end of the spectrum megacap stocks, as measured by the Russell 200 index, had an average-weighted market cap of $112 billion as of July 31.
The Russell 200 index is up 3.16% for the seven months ended July 31, compared with a 3.13% return by the Russell 3000 index. The Russell Top 200 returned an annualized 9.11% and 1.23%, for the three- and five-year periods ended July 31, compared with 11.68% and 3.85% gains by the Russell 3000.