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30 Years of US Small Cap Investing

30 Years of US Small Cap Investing

Rosenberg equities

In the US, 1987, was not necessarily a remarkable year by historical standards. The Ford Escort was the most popular car, The Last Emperor won Best Picture at the Oscars and Paul Simon’s Graceland won the Grammy for Best Album of the Year1.

In Orinda, California, 1987 marked Rosenberg Equities’ first year managing US small cap equity strategies. Now, after 30 years of investing in US small caps, we take a look back on the evolution of this important market segment.

Small Caps are dynamic

The precise definition of small cap can differ among investors. For the widely used Russell 2000 Index, small-cap stocks are based on a count of companies; specifically, the 1,001st – 3,000th largest companies by market capitalisation measured and reconstituted each June. Over the last 30 years, this group of 2,000 companies accounted for about 8% of total US market capitalisation, ranging between 7% to 11%. Of course, there is no magic to cutting the market off at the 3,000th stock. But including the stocks in our own investment universe below that threshold adds roughly another 1% of market cap to the size of the smallcap segment on average over the past 30 years. Given these averages and range, a good rule of thumb is that smaller companies make up about 10% of the US equity market.

Smaller companies are a dynamic group with the constituents moving in and out of the universe at an impressive rate. Back in June 1987, there were just over 2,700 stocks in our investment universe below.

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