Smabolags Studie...

En studie som jag tidigare inte delat med mig men som kan vara bra att kanna till for folk som sitter packat med smabolag i sina portfoljer. Texten ar skriven av mig sedan tidigare. Vart att namna ar att forhallandet hittar aven ett liknande beteende pa den svenska sidan.

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In this case study we can see the relationship between the yield curve and the relative strength ratio of small-caps vs. large-caps. This study is a good one from a larger investment perspective in conjunction with the rise and fall of the yield curve. Clearly, investors do seem to have a preference. When looking at this relationship, periods where the yield curve is contracting usually suggests some sort of economic contraction as long-term rates fall in anticipation. And the opposite is also true when we anticipate an expansion, thus, this seems to favor small-caps as they often tend to be the group that first goes in and out of the recession, or economic slowdown. 

There is however one period that is a bit puzzling, but would make sense as we shall see. The period in question on the chart below is between 1994 to mid-1997 marked as "A". Yield curve leads the way by topping out about 16 months before the relative strength ratio turns lower. One possible explanation could be that during this period the birth of high productivity policy among large-cap companies became a rule (as a competitive edge) in order to increase future net profits. Looking at the macro-economic charts for confirmation, it shows that private fixed investment (quarterly % change) between 1991 to 1994 went straight up from -15% to +20%. As a result of this huge investment boom productivity kicked in and bottomed exactly in 1994 from a low of +0.2% straight up to about 3% in 1997. 

The next point on the chart is the vertical sharp drop in RS ratio between mid-1997 to early 1999, marked as "B" - This period can be explained by the fallout from the Asian debacle that occurred and from the Russian bond default which led to global fear and flight-to-quality to the 10-year U.S treasury bond. As a result of the Asian experience, corporate profits and net cash flows dropped vertically straight down from +15% growth, to minus 10%. To no surprise, small-caps are the ones who get hammered the most since their revenue flow is less diverse even though (in this case) every market-cap was affected by the fallout.

Inlägget är redigerat av författaren.