Reeling In Small-Cap Alpha

Reeling In Small-Cap Alpha by Vitali Kalesnik and Noah Beck, Research Affiliates

Key Points

1. Stocks of small companies have higher incidences of price volatility and mispricing, increasing opportunities for investors to earn excess returns.
2. Implementing outperforming strategies, such as value or momentum, in the small-cap universe amplifies their alpha-generating potential.
3. High trading costs of small-cap stocks disadvantages passive implementation when compared to skilled active management.

Although we live at the edge of the Pacific Ocean, our weekend adventures often take us inland to enjoy the lakes and streams of California and her neighboring states. A favorite pastime is fresh-water fishing. For most, the lure of fishing is a combination of serene beauty, contemplative quiet, and the satisfaction of reeling in as many...