Thinking about investing in Small-Caps?
Think about Micro-Caps.
Supporting Image for Blog Post


View from the Observation Deck

  1. While most investors have probably at least heard of small-capitalization stocks (small-caps), the majority are likely unfamiliar with the smallest of these publicly traded stocks, known as micro-caps.
  2. The parameters can vary as to the market capitalization (market cap) range financial firms use to define micro-cap stocks, but a conservative universe would include companies with a market value of $50 million to $500 million.
  3. Because micro-cap companies are so small relative to their small-, mid- and large-cap counterparts, investors should expect them to trade with a higher degree of volatility, both up and down, over time.  Liquidity can also be an issue.
  4. The 2007 and 2011 calendar years in the chart provide a good example. Micro-cap stocks declined by a greater percentage than did small-cap stocks (Russell 2000).
  5. Today, there are a number of packaged products, such as mutual funds and exchange traded funds, available to investors in the micro-cap space.
  6. Packaged products are appropriate for investors, in our opinion, because micro-cap stocks do not receive the same level of analyst coverage on Wall Street as their larger counterparts. So professional management/selection can add value.
Posted on Thursday, May 10, 2012 @ 3:07 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.