Kevin O’Leary Betting on Small Caps to Outperform S&P 500
This article was originally published on ETFTrends.com.
Canadian businessman and "Shark Tank" television personality Kevin O'Leary has a penchant for big ideas, but when it comes to U.S. equities, he prefers the small caps.
With tax reform on their side, O'Leary sees more investment capital flowing into these small capitalization companies versus their larger cap brethren.
"I say there is 20 percent more cash to come to these companies in the next 24 months through tax reform, so I am staying on this trade. I am betting they continue to outperform not only the S&P, but maybe even emerging markets. There is tremendous value to be unlocked in small caps in America," said O'Leary.
Looking at the year-to-date charts for the Russell 2000 as a barometer for small caps and the S&P 500, the small caps are in the lead at 11.48% versus 7.18% for the large caps. According to O'Leary, this could be a recurring trend for the next two years as a result of enhanced cash flows due to deregulation in specific states that benefit small companies.
"For the next two years, the full impact of tax reform will play out in enhanced cash flows in small caps because what we've seen now is primarily driven by a deregulation removal because a lot of the states these are in, particularly in California, Texas, Florida, New York, where these small businesses operate or are headquartered, have had a lot of relief of a lot of different regulations we never talk about," said O'Leary.
Related: Interest Rate Policy After September Hike Uncertain
Both the S&P 500 and Russell 2000 were pacing fairly equally until the beginning of April where the gap between the two began to widen. Despite their more inherently volatile nature, small caps' propensity for higher growth could see them continue to outpace the large caps in this extended bull market.
For more investment strategies, visit ETFTrends.com.
POPULAR ARTICLES FROM ETFTRENDS.COM
