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Small-Cap Firms Outperform Large-Cap Firms in a Bull Market

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Jun. 25 2015, Updated 2:06 p.m. ET

Large caps versus small caps

Larger-cap stocks above $10 billion make up 88.45% of the Financial Select Sector SPDR Fund (XLF). These stocks have risen by 0.61% YTD (year-to-date) and by 0.12% in the last five trading sessions ending June 19.

In comparison, smaller-capped stocks—those under the $10 billion marker—have risen by 2.05% YTD and have fallen by 0.02% in the past week. In part, this performance has been fueled by market sentiment based on strong domestic economic conditions in which smaller, nimbler companies can take advantage of market opportunities.

Small-cap stocks have been trading at a one-year forward price-to-earnings ratio of 23.46x. Large-cap stocks have a price-to-earnings ratio of 20.85x.

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Market-cap analysis of subgroups

Large-cap banking stocks make up 45.9% of the XLF portfolio. These stocks fell by 0.77% last week. And while YTD, large-cap banking stocks within the ETF have risen by 4.45%, small-cap banking stocks have risen by 9.13%. Clearly, small-cap stocks are outperformers in a bull market.

The best-performing large-cap banking stocks were Capital One (COF) and Goldman Sachs (GS), which rose by 0.97% and 0.06%, respectively, in the past week.

Large-cap REITs make up 17.31% of the XLF portfolio and have an average dividend yield of 3.45%. They have fallen by 3.95% YTD. In contrast, in the past week, they have risen by 1.14%. In comparison, the four small-cap REITs fell by 5.32% YTD and rose by 1.99% in the last week. The best-performing REIT was Equity Residential (EQR), which is currently trading at $74.07. It rose by 3.52% in the past week. Meanwhile, Macerich (MAC) was the worst performer, and it fell by 5.23%.

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