Relative Value Small caps vs Large caps

M

marameo

Hi,

Over the last year the small caps have not outperformed large caps for the first time. I was considering placing a relative value trade between Russell 2000 and S&P 500.

I understand it's almost impossible to achieve zero market correlation. Also, there's usually more volatility on the small caps.

The strategy is long 2xRTY and short 1xES futures.

https://it.tradingview.com/symbols/spread/2*TVC:RUT-SP:SPX/

Currently the spread is at 5 years minimum.

I wonder if a interest rates cut will favour small caps more.

Thanks
 
So, gold increases, yield curves invert (in negative rates territory in europe) and small caps have been lagging...what's next?
 
AFAIK, small caps tend to rally in the beginning of a bull market and then as recession fears take hold they under perform.

Recession can cause serious problems for small caps.

The Russell is weighted heavy financials, consumer discretionary, and healthcare, more so than SPX. A good holiday season could make your spread profitable. On the other hand, global recession fears are causing dollar rally and capital flight to safe haven assets. SPX could be volatile which could make your P/L swing back and forth before proving you right.

This is not an easy call to make. Good luck.
 
10-Year-Total-Returns-IWM-vs-SPY.png


"From the start of 2019 through July the Russell 2000 ETF has generated total returns of 17.6%, versus 20.1% for The S&P 500. Interestingly, small cap stocks have underperformed despite strong overall market gains.

And while the long-term evidence points towards small-cap stocks outperforming over the long run, that has not been the case over the last decade when comparing IWM to SPY."

https://www.suredividend.com/russell-2000-stocks/
 
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