Want Microcap Performance? Look to the Private Market

micro caps to me.

Um, and again, I had the great fortune of working at Aerial Investments when they had the Aerial Discovery Fund, which was run by a gentleman named David Malay.

And David was uh a micro cap expert.

And that fund invested truly in micro cap stocks.

But because it did, it never performed at all in correlation with equities because liquidity and all kinds of things that impact how micro cap funds or stocks trade.

Today, if you want that kind of exposure, you got to go to the private markets.

Exactly the point Mike was saying.

If you want to get all the attributes that small and micro cap stocks used to provide, you you get it in the private markets.

That's where those attributes now reside.

So these products have inherent headwinds to them that are structural.

You know, there's a lot of debate on why small caps have underperformed and Mike did an amazing job breaking it down uh completely.

And so for me, you know, exactly what Mike said, if you're going to do small cap, the one thing that has been persistent in small cap is that active management adds alpha.

And that has historically been true because small caps are rising stars and falling uh falling knives and you want to avoid the falling knives.

And if you uh tend to uh invest just in an index, there's a lot more falling knives in the index than rising stars.

That's always been the case.

So active management has always been better.

That's also why if you look at the two major small cap indices, the S&P 600 and the Russell 2000, because the S&P 600 has a smaller number of names and has a quality screen, it always persistent outperforms the Russell 2000.

Always.

There's not very few if almost no periods of which that is not the case. speaking to that quality bias of active uh management that occurs when you are selecting with a quality bias.

So in this space you want an actively traded small cap fund or micro cap fund.

And if you look at historically when we always say you know only 70 only 70% of fund active managers don't outperform their benchmark in large cap.

It's not true in small cap.

It's different in small cap.

And so you want an active manager.

If you look at how small caps have done in this period where small caps have had this structural headwind, active has substantially outperformed passive.

All three of these funds are passive.

And so I wouldn't touch any of them.

And so I have no winner.

And I'm uh kind of um building off what Mike talked about in terms of like the problem that's structural in this space and why if you want to get the attributes you used to get in small caps, you really got to look at private markets to do it.