Small caps are losing their luster, as hedge funds have found something that shines even better – gold. Warning signals of an impending correction have come from Citigroup analyst Albert Richards, who told MarketWatch that one indication is that the once supersonic small cap Russell 2000 was down 0.1% in April, while large caps, playing catch-up, ended the month up 1.2%.
“Valuations are starting to matter,” Steven DeSanctis of Prudential Equity Group said in a MarketWatch interview. “It looks like hedge funds are booking their gains and getting [out of small caps] and into commodities.” DeSanctis added that the next 12 months should be “a little dicey for small caps.”
MarketWatch says small caps were expected to fall early in the year as investors would view them as overpriced, but hedge funds have kept the momentum going through the first quarter, until now.