Stocks of small-cap companies may have a much higher potential for return than the large-cap companies that analysts traditionally cover, according to HedgeWorld News.
Carl Sibilski and Tom Goetzinger, both former Morningstar employees in the equity research department, claim that hedge funds looking for a long-only strategy should look to small company stocks. The two men are currently working with hedge fund Oyster Capital Management.
"At mutual funds, there is pressure to not be too different from the index and at the same time to try and beat the index," said Sibilski. He also forecasts that mutual funds will buy the same stocks that Oyster holds once the companies mature.
When testing their investment strategy, the two men found that seven out of 10 stocks had gains relative to the Russell 2000 Growth iShares over rolling one, two and three-year periods.
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