High-Flying Small Caps Grounded In May

After three spectacular years of outperforming their bigger brethren, small cap growth stocks fell to earth, losing 4.2% in May, compared with -3.9% by mid-caps and -3% for large caps. Contrast that to the past three years when small caps posted annual returns of 21.1%, vs. 18.6% for mid-caps and 14.2% for large caps. The problem, according senior research analyst Tom Roseen of Lipper, is that investors poured so much money into small caps that they lowered the value of the stocks. In addition, rising interest rates made it more difficult for small companies to borrow money, while hardly affecting bigger companies. And a weakened dollar negatively affected small companies more than large ones. Still, Wall Street advisers recommend keeping small caps in a portfolio for diversification, according to the Associated Press, but they also urge investors not to panic; it’s only one month and stocks of all sizes were affected.