Small-cap vs large-cap
Interview: Buffalo Group of Funds--Laming, Thomas---Fund Manager
>> welcome back, influ evenings goldman sachs analyst rick sherlund says he thinks microsoft will raise its dividend. he’s a bit more optimistic they’ll boost the dividend giving a dividend yield of 2 the. microsoft’s current yield is 3/10 of 1%, the smallest among the dow jones industrial average. he points out that as the company’s cash continues to build above $50 billion now, it could consider a separate special dividend. once that is paid over time, rather than in one lump sum, microsoft shares down 2% on the day, even with rick sherlund’s comments as a backdrop. bloomberg news has learned microsoft is close to settling an antitrust suit over sales of windows. the company has agreed to pay $10.5 million to customers who said they overpaid for individual copies of the operating system. they were sold over a microsoft website. the company moved toward a deal after the judge excluded from the suit multiple purchase customers such as computer makers like gateway. by settling, microsoft can avoid a trial and the risk of a jury awarding the triple damages allowed in many antitrust cases. for the plaintiffs a settlement avoids the risk of, fs, losing their case. small-caps have been making their case this year doing pretty well so far. the russell 2000 index, the benchmark for small-cap companies, is up 20% so far this year. now, compared to the s&p 500 which is up under 10% in the same time, our next guest says now may tb start of the small-cap run. tom glammen is co-lead manager of the buffalo small-cap fund which easily outpace ts s&p and russell, up over 34% in the past 12 months, over 30% year to dat date. he joins us from kansas city. welcome.
>> thank you.
>> the environment here is start tog favor small-caps, in your vurks over large-caps. the why do you say that.
>> for a couple reasons. one.i. think the dollar has bottomed. the european economies are much weaker than ours. ours is actually strengthening as some of your prior reports have indicated. i think that’s going to continue to put upward pressure on the dollar. a weak dollar is good for large-cap companies. a stronger dollar will bad for them. i think that’s reflected in gillette’s results. gillette’s results show the weak dollar benefit. now think the expectation is moving the other way.
>> is the currency issue the only one that’s sending you in this direction or is there other historic information that provides you with these answers?
>> yeah, that’s more of a shorter term issue. longer term, if you look at a history of large versus small, much of, if not most of that performance of small-cap over large-cap has come during periods of inflation. we are not showing that now but it’s interest tog look back and recognize it over the 1926 to 2002 period. small-caps have outperformed by about 2 percentage points per year. if you strip out the five most inflationary years, 1977 to 1981 that drops to less than 3/4 of a percent. so having that benefit or that advantage of small over large, think when you look at the 10-year yield, the yield on the 10-year government bond having run from about 3.1 up to about 4.4 over the last month and a half, expectations of inflation are rising, and that actually could start to fuel, you know, better performance for small-cap relative to large.
>> when you mention inflation, there was so much talk in the beginning portion of this year about deflation and disinflaz and the differences between them but both headed in a different direction than inflation, how much of a concern is inflation for you. how much do you expect inflation to be this year?
>> we are still running it at very very low levels but the fed is so focused on avoiding deflation think they’ll probably get what they ask for. they’ve been very very aggressive. the european central bank is starting to become more aggressive. so think it’s likely we’ll start to see higher inflation later in the year. again, i think we start to see that now in the move back upward in government bond yields.
>> among stocks you like you like retailers, borders group and barnes & noble, chief rivals off the web, and ethan allen. are you concerned at all in this environment that consumers may be spending less out there? why don’t you think that will hurt these companies as we continue to hear about trouble in unemployment and other issues surrounding the consumer?
>> well, where we’ve done the best this year has been on companies that thrive on business spending, so it’s been more the semiconductor companies as an example, technology. the consumer stocks for us have really kind of been flat over the last year as opposed to some of the other stocks being up, you know, 30 to 40%. so i think we are slowly moving into a period of, especially if we get a little more inflation we’ll have better pricing power for these retailers. the unit growth for ethannal lerngs barnes & noble and borders, should be driven partly by unit growth. they all fit into a segment that sells to the fastest growing age groups. the unit growth should be there over the next three to five years.
>> do you have any concern at all about barnes & noble and the addition allstate they are going to have in barnes & noble.com, buying that stake and how that’s going to reflect on their bottom line and revenue statement?
>> i definitely do. we’ve been watching that closely for years now. i knew they’d eventually take that back in, and did not -- they certainly did not want to do so until pricing on the internet was much more rational. i used to go out and buy books at far below the bookstore price. the pricing is much more rational, as we see with barnes & noble and bore ders.
>> discount rers wage ag jeans war for back to school shopping dollars.
