SMID Caps Soar 30 Percent in 2013: A Look At Valuation


With SMID indices posting resilient returns year-to-date, Citi analysts feel historical performance trends point to the indices maintaining their momentum.

Scott T. Chornert and Louis L. Odette of Citi note the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) has posted over 30% return year-to-date, while the Russell Mid Cap returned a slightly lower 26%. Citi analysts point out the resilient performance comes despite sluggish economic conditions and ongoing political uncertainty.

Historical performance points to momentum

Citi analysts feel based on historical performance, the returns for Russell 2000 (INDEXRUSSELL:RUT) and Russell Midcap (INDEXRUSSELL:RMCC) for Nov-Dec will post solid performance after strong YTD gains of the current magnitude.

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Asset ManagementValueWalk's Raul Panganiban interviews Ross Klein, CFA, and Vince Lorusso. Ross is founder and CIO at Changebridge Capital and Vince is Partner and Portfolio Manager at Changebridge Capital where they manage the CBLS, Changebridge Capital Long/ Short Equity ETF and CBSE, Changebridge Sustainable Equity ETF. The following transcript is computer generated and may contain some Read More

Corroborated with past performance data, Citi analysts point out the YTD return for RUT currently stands at its fourth-best since the late 70’s index launch. Similarly, the analysts point out the RMC now stands at its third-best Jan – Oct return on record.

Citi analysts further note the 16 years where the Russell 2000 (INDEXRUSSELL:RUT)’s gain in Jan-Oct was over 10 percent, Nov-Dec posted a positive return in 15 of these 16 years. Russell Midcap (INDEXRUSSELL:RMCC) too displayed a similar trend when it generated over 10% return in Jan – Oct in 19 years, while Nov-Dec posted positive returns in 17 of these 19 years.

The following tables (Figure 1 and 2) demonstrate the analysts’  viewpoint:

SMID RUT and RMC Historical Returns

Micro caps post higher return

Scott T. Chornert and Louis L. Odette of Citi point out with a strong performance posted by RUT so far this year, micro caps have posted still stronger 35% returns, which are also on par with Russell 2000 equal weighted returns. The following graph illustrates strong performance from micro caps:

SMID Microcaps

Strong week for SMID

Turning their focus to the weekly performance, Citi analysts point out that the Russell 2000 led another strong week for SMID with a 3.1% increase. Following suit, Russell Mid Cap index also posted a 2.5% increase, while Russell 2500 (INDEXRUSSELL:R25I) posted 2.7% gain. However, S&P 500 posted a tad lower return of 2.4%.

During the week, energy and financials were the lead performers, while materials and industrials also posted strong performances. However, technology displayed laggard performance, while consumer discretionary posted mixed performance.

Citi analysts also noted that value style indices picked up some ground during the week, outperforming growth most significantly in mid cap, but less so in small and SMID.

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