And the Best Stock Pickers Are….

Hint: bigger isn't better.

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big and smallA member of the editorial advisory board at Canadian Investment Review just sent me this interesting story – it’s a piece from Bloomberg showing that the best stock pickers out there are analysts covering the smallest U.S. equities. As the article notes, “Standard & Poor’s SmallCap 600 Index companies with the highest recommendations beat the lowest-rated shares by 12 percentage points in the year ended May 31.” Clearly smaller is better according to the piece. Read more from the article below…

(Bloomberg) Analysts covering the smallest U.S. equities are proving to be the best stock pickers.

Standard & Poor’s SmallCap 600 Index companies with the highest recommendations beat the lowest-rated shares by 12 percentage points in the year ended May 31, according to data compiled by Bloomberg. Over the same period, the S&P 500 shares most favored by analysts trailed the worst-ranked companies by 6.2 percentage points, the data show.

Small-stock analysts are more successful because their recommendations tend to influence trading and the companies are easier to evaluate, according to James Paulsen at Wells Capital Management and Eric Marshall at Hodges Capital Management Inc. S&P SmallCap 600 companies trade less than those in the S&P 500, with daily volume averaging 373,240 shares in the past 30 days versus 5.6 million, Bloomberg data show.

“With small caps, you’re dealing in a universe that’s less followed, more illiquid — and people move on analyst calls,” said Paulsen, the chief investment strategist at Minneapolis- based Wells, which oversees about $340 billion. “With the large caps, it’s your standard problem of herds and contrarian thinking. By the time you give a good case why you’re recommending a stock, it’s already extended. The smart money’s already leaving.” (read the full article here)

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