Small-company stocks are booming causing a growing debate in the industry that hedge funds and exchange-traded funds are playing an unbalanced role in the market, according to The Wall Street Journal. Mutual funds that invest in small-company stocks saw double-digit returns last year, even though some experts predicted the run would end. However, some investors don’t think that all the gains can be attributed to the underlying companies fairing well. They state that cash pouring in from hedge funds and the increased use of ETFs may be strong factors in the companies’ returns. Safer investments such as government bonds have not been offering high returns lately and investors are switching to riskier alternatives such as small stocks. The effect on stock prices there can be overstated, as every dollar invested in a small company represents a higher percentage of its market size, as compared with a large company. ETFs focused on small stocks have also become popular.
Hedge Funds, ETFs Seen as Behind Small-Cap Boom
January 08, 2007, 1:00 a.m. EST 1 Min Read