Size matters, or does it?
There's a trade that seems so easy, so comfortably logical in its rationale, that it almost begs the skeptical thinker to ask how it could backfire.
This is the "size trade," the idea that investors should now eagerly take the considerable winnings they may have amassed by owning small-capitalization stocks in recent years and redeploy them in shares of massive, ocean-worthy companies.
It's a worthwhile time to address the idea, given the S&P Small Cap 600 Index last week reached an all-time high, remarkable given the big-cap S&P 500 remains more than 25% below its peak set in 2000.
The logic behind rotating from small to large stocks comes in a few forms. One plays on the "nothing lasts forever" theme, pointing out that small stocks have outperformed bigger ones for some five years, a bit longer than the typical win streak.
Morgan Stanley notes small-caps have beaten the S&P 500 by an annualized 21 percentage points over the last five years, versus 13 percentage points over 3? years in the prior cycle, which ended in 1994.
Another relies on relative valuation and growth trends. Morgan Stanley strategist Henry McVey, conceding it's quite hard to call the turn in such relationships, says the small-cap Russell 2000 had a trailing price-earnings ratio 40% above that of the S&P 500 at the end of May. That's as high as it was in 1983, at the end of decade-long outperformance by small shares, and is twice the historical average premium of 20%.
On the growth front, littler companies have been warning of profit shortfalls at a somewhat higher rate than the heavyweights have, though both groups have had relatively few confessions.
Slowing economic growth, too, usually portends an end to small-cap overachievement. And, finally, one of Wall Street's rules of thumb is that small companies are more exposed to rising interest rates, due to heavy reliance on bank financing. This pattern is observable from past data, but isn't as persuasive as perhaps it used to be due to the tech- and financial-heavy industry makeup of the small-cap indexes.
The market action very recently has lent encouragement to the advocates of this rotation trade. The Russell 2000, for instance, marginally trailed its large-cap sibling, the Russell 1000, last quarter for the first time in five quarters.
Also, a handful of the very biggest stocks -- notably Microsoft and GE -- have begun regaining ground on the broad index of late, catching the eye of market watchers. This has emboldened some of the market's color commentators to assert that the game has changed and the very hugest stocks are now the thinking man's bet.
Among others, Smith Barney's equity strategy group points out that "the mega-cap stocks (the top 25 market-cap names in the S&P 500 that account for roughly 37% of the index's aggregate value) are trading near 20-year lows" in terms of relative forward P/E ratios. "Thus," says Smith Barney, "we think a larger-cap focus is still appropriate for the time being."
McVey at Morgan Stanley makes a related but distinct point, that larger -- but not enormous -- stocks are preferable in the current environment. While advocating a rotation away from small stocks, he sees reasons that the very biggest stocks could indeed disappoint, in part due to their enormity. In many instances, he says, "mega-caps have gotten so mega that they can no longer grow without igniting the ire of regulators or consumer activists." Fannie Mae and Wal-Mart are examples. Indeed, Microsoft and GE are the only mega names he recommends, based on company-specific margin trends and returns on capital.
Even with all the evidence marshaled behind the idea that small will give way to big, an explanatory clause seems necessary here. Namely, it's the fact that the market itself suggests small-cap underperformance could mean a weak market overall.
Consider that since 1995, on days when the S&P 500 rose, it outperformed its small-cap counterpart 59% of the time, and when the S&P 500 fell it outperformed 37% of all days, according to Jason Roney of
www.Tradeplotter.com and
www.Minyanville.com. But so far in 2004, days when the S&P closed higher it beat the small-cap index only 34% of the time, while holding up better on down days 62% of the time.
This pattern seems to be saying that in the current environment, higher stock prices are most consistent with small-caps beating big-caps. And vice versa.
This goes against the notion that big stocks can flawlessly grab the baton from small ones in the context of a still-strong market. Let's also recall that after the last traumatic bear market ended in 1974, small stocks beat big ones for almost 10 years, while the broad averages went nowhere.
Small-caps have served as a reliable gauge of market liquidity, economic momentum and the general appetite for stocks among investors since the market bottom in March 2003. These relationships could always change and money could conceivably shift, on the fly, into larger stocks while the whole market marches higher. But the scenario is a bit too pat to accept uncritically.
Charting an uncertain course
Lots of investors insist there's nothing to be gained by observing charts like the one reproduced nearby, from Scaheffer's Investment Research, which shows the 10-year course of the S&P 500 along with its 200-day and 80-month moving averages. These people will tell you that chart reading is like gazing at clouds, where anyone can conjure a familiar object.
Still, it's striking the way the two moving-average lines on this chart so clearly define the compact range that's ensnared the market so far this year, from about 1100 to 1160 on the S&P 500.
If nothing else, it indicates why so many traders perceive the market to be hovering near a crucial juncture, or perhaps treading water in swirling currents. After all, one thing about charts is that hundreds of performance-obsessed hedge-fund traders study them -- if only because they believe other, lesser minds put credence in them.
So, if the common wisdom holds that a decisive break above or below that band could determine the direction of the next big move, it's worthwhile, at least, to be aware of these leanings of the hair-trigger crowd.
No, Thataway: With investors fixated on the Fed, softer jobs and retail data took them by surprise. Cyclical and tech shares such as Caterpillar and Intel fell as the Dow lost 89 points.
Wing and a prayer
UAL, the parent of United Air Lines, is a financial mess. The federal government last month turned down the company's request for a $1.1 billion loan guarantee, which will force UAL to seek even greater financial concessions from its unions as it looks to emerge from bankruptcy.
Yet UAL common shares still trade for $1.40 a share on the OTC Bulletin Board, resulting in a market value of $150 million. The current share price, as our Barron's colleague Andrew Bary notes, seems nutty, because even UAL believes the stock is worthless. Its Web site states: "We believe that UAL's presently outstanding equity securities will have no value and it is expected that those securities will be cancelled under any plan of reorganization that we propose."
Why does UAL stock trade at $1.40? Part of the reason is that the stock is very difficult to sell short, because the shares are hard to borrow.
Some investors, no doubt, are hoping that there will be some recovery value even though airline bankruptcies typically are brutal on both equity holders and creditors. Common holders generally get wiped out and unsecured bondholders often get little.
Reflecting the company's plight, UAL's unsecured debt now trades at just 10 cents on the dollar. Those bonds may be overpriced, but they're a better bet than the common. In the past year, UAL shares have traded between 43 cents and $3.70.
There are plenty of depressed airline securities available for risk-taking investors.
US Airways common shares fetch just $2.25 a share, down from a high of $32 last summer. US Air is in a tough situation. It's losing money, seeking to further cut costs and fending off rivals like Southwest Air. But US Air is still solvent. Its equity value of $130 million is below that of UAL.
Delta Air Lines shares, at $7, are speculative, but they could rally if the company succeeds in securing concessions from its pilots and oil prices continue to ease. A less-risky Delta play is its unsecured bonds, such as the 9.75% notes due in 2021, which trade for about 46 cents on the dollar and yield over 20%. If Delta avoids bankruptcy in the next year, those bonds likely will rally.
投资大型股是否正当其时？
有一种交易看起来非常简单，其操作原理非常合理，几乎只有吹毛求疵的人才会质疑它是否会让人赔钱。
这种交易被称做“规模交易”(size trade)，其投资理念是，投资者应赶快把他们近年来通过投资小型股等方式获得的可观收益转投到大型股中去。
鉴于标准普尔小型股600指数上周升至了历史最高点，特别是鉴于标准普尔500这一大型股指数目前仍较其2000年时创下的历史高点低25%以上，拾起“规模交易”这一投资理念正当其时。
提出要将投资热点从小型股转向大型股有几个内在理由。其中之一就是“花无百日红”这种想法，由这种观点来看，小型股表现优于大型股的时间已有5年左右，已经略长于正常水平。
摩根士丹利(Morgan Stanley)指出，过去5年中，小型股指数的升幅比标准普尔500指数的升幅平均每年高出21个百分点，而截止于1994年的上一次小型股表现优于大型股的周期持续了三年半时间，当时小型股指数的升幅比大型股指数的升幅平均每年高出13个百分点。
另一个理由来自小型股和大型股的相对价值和增长趋势。摩根士丹利的策略师亨利?麦克维(Henry McVey)说，今年5月底时，罗素2000小型股指数的本益比较标准普尔500指数要高出40%，这一幅度与1983年时的水平相当(小型股表现优于大型股长达10年的局面在那一年终止)，而从历史上看，小型股本益比高出大型股本益比的平均幅度也不过是20%。
在经济呈现增长的情况下，中小型企业发出收益预警的几率某种程度上一直要高于大型企业，不过对这两类公司来说预警变为现实的情况倒都不多。
通常情况下，经济增长减缓也会预示著小型股表现优于大型股的局面将告结束。最后，按照华尔街的金科玉律，小型公司更易受到利率上扬的打击，因为这些公司严重依赖从银行获得融资。从历史数据中可以发现这一趋势，不过由于小型股指数的成份股中目前包含了大量科技和金融类股，这一趋势不像以往那样明显了。
股市近期的表现支持了这种要将投资从小型股转向大型股的说法。从上季度的情况看，罗素2000指数的表现自5个季度来首次略逊于罗素1000大型股指数的表现。
此外，微软(Microsoft)和通用电气(GE)等罗素1000指数的超大型成份股最近又开始恢复了起色，让市场观察人士不由得对其刮目相看。一些见风使舵的评论人士更进一步断言，大型股又开始吃香了，超大型股目前应成为投资者的宠儿。
美邦(Smith Barney)的股票策略师们与其他人一道指出，以预期本益比来衡量，超大型股(指标准普尔500指数中市值排在前25位的股票，它们共占该指数总市值的37%左右) 的表现已处于近20年来的最低水平。美邦因此建议目前应考虑投资大型股。
摩根士丹利的麦克维则明确指出，较大型股票，而非超大型股票在目前情况下更值得投资。他虽然赞同人们将投资从小型股转向大型股，但认为投资超大型股可能不会有好的收益，部分原因是这些股票的规模太过庞大了。他说，超大型股票的规模是如此庞大，以致于在许多情况下，如果没有政府监管机构和活跃的消费者来煽风点火，这些股票已不再能继续上涨，联邦国民抵押贷款协会(Fannie Mae-, 简称：房利美)和沃尔玛(Wal-Mart)就是两个例子。事实上，在超大型股中麦克维仅推荐了微软和通用电气这两只股票，推荐理由是这两家公司独特的利润率趋势和股权回报率情况。
即使所有的证据都显示小型股的热门地位将让给大型股，但似乎还需要再解释几句。简而言之，股市的现实表明，小型股表现弱于大盘可能就意味著股市的总体表现将进入疲弱期。
考虑一下1995年以来以来的情况，根据
www.Tradeplotter.com和
www.Minyanville.com提供的数据，当标准普尔500指数上升时，其有59%的时间表现要优于小型股，而当该指数下跌期间，其有37%的时间表现优于小型股。但是今年迄今为止，标准普尔500指数在收盘上扬的日子里表现优于小型股的时间只有34%，而在收盘下跌时表现优于小型股的时间却占62%。
这一趋势似乎表明，在目前情况下，股市总体上扬是与小型股表现优于大型股相伴发生的。反之亦然。
这与即使在依然强劲的股市中大型股也能顺利取代小型股领涨地位的看法形成了矛盾。让我们再回想一下，在截至1974年的大熊市中，有几乎10年的时间小型股的表现都要优于大型股，而在此期间股市的总体表现却不怎么样。
自股市于2003年3月触底以来，小型股一直可以被看作反映市场流动性、经济增长动力以及投资者对股市总体偏好的指标。当然情况总是变化的，在股市总体上扬的情况下资金也有可能大量流入大型股。但要人们毫不怀疑地接受这一看法似乎还有些勉为其难。
