THINKING: Perspectives

Mission: Possible-Part 1: Strategic Small-Cap Stock Trading

Part 1:  Strategic Small-Cap Stock Trading; Why Now?

(September 4, 2018) – In a global investment landscape dominated by news cycles revolving around FAANG, rising interest rates, trade wars, and risk management complacency, soaring profits at smaller publicly traded companies requiring strategic small-cap stock trading are driving the Russell 2000 to new records as investors bet U.S. economic strength will boost smaller companies while trade frictions hit their multinational counterparts.

Asset classes and investment styles are coming in and out of favor, either in the hope of discovering the next investment grand slam, or the fear of missing out on the next popular investment theme. In today’s financial climate, where oversaturated coverage of large cap stocks guides an investor to focus on a particular strategy, it shouldn’t come as a surprise that more subtle trends and less covered stories can often go unnoticed.

An analysis into the last 30 quarters of institutional investor-related searches across the equity spectrum reveals that 7 of the last 10 quarters exhibited a larger than average inquiry and search rate for Mid and Small Cap strategies, with 2017 displaying significantly higher consecutive quarterly inquiry rates than other years. Moreover, based on investment returns of Small-Cap Indexes relative to Large Cap Indexes, one can conclude that investors who have committed time and resources to make the plunge into Small Cap stocks have been handsomely rewarded. In 2018 Q2, the Russell 2000 Index outperformed the Russell 1000 Index by 418 basis points. In the first half of 2018 the outperformance was 481 basis points, and on a 12-month rolling performance through June 30, 2018 the outperformance was 303 basis points.

Because of such activity, investment decisions are made and portfolio activity is triggered. As a consequence, transition management teams are being called upon to implement and execute changes to plan sponsors’ investment programs in the pursuit of alpha and investment return. As investors investigate various investment philosophies (active vs. passive, value vs. growth, etc.), return patterns take on different profiles, and implementation costs can show meaningful dispersion moving about this relatively expensive asset class. After all, significant resources are dedicated across investment staff, consulting community, and asset managers to reach the best decision. However, execution intricacies of the asset class have been misunderstood or marginalized as quantitative aspects take precedence over qualitative considerations.

What follows is a multi-part series highlighting Penserra’s effectiveness in the challenging arena of small-cap stock trading. These articles will focus on the evaluative and execution processes applied by Penserra to manage the risks associated with trading small-cap stocks

Part 2:  Fundamentals of Small-Cap Stock Trading

Part 3:  Transitioning Global Small Caps – More than meets the eye

Part 4:  High-touch Trading Techniques of Individual Small-Cap stocks

If you have any questions or wish to learn more about Penserra’s ability to transition and trade small-cap stocks, please contact Zlatko Martinic, CFA at or Jason Valdez at, or call 800-456-8850.