Why pick small caps in a world of fear, uncertainty and doubt

SMALL CAPS

Lauren Romeo, portfolio manager at Royce & Associates and manager of the Legg Mason US Smaller Companies fund, explains why economically sensitive stocks provide the most compelling investment opportunities.

From a strategic standpoint, investor sentiment toward equities – both small and large – has become increasingly negative over the last couple of years and, in a repeat of 2010 and 2011, macroeconomic news has increasingly dictated the short-term direction of trading. Ongoing eurozone woes, the upcoming presidential election and looming so-called fiscal cliff in the US, and decelerating growth in China, along with other important emerging economies, have all increased the level of ‘FUD’ – fear, uncertainty, and doubt – in the stock market. From a stock picker’s perspective, however, t...