Following an extremely rough fourth quarter which saw the Russell 2000 Index fall 20%, and the Russell Microcap Index fall 22%, smaller names are rebounding nicely so far in 2019. Year to date both indexes are up nearly 10%; interestingly, there's also little return dispersion between the value and growth components of either index. The Russell 2000 Growth Index (+10.29%) is just 64 basis points ahead of the R 2000 Growth Index, while the Russell Microcap Growth Index (+10.2%) is 59 basis points ahead of the Value Index.
Small and microcaps are also getting the best of the S&P 500 (+6.5%) year-to-date. However, we are also just 13 trading days into the New Year, and it is way too early to tell whether the positive action is a resumption of the bull market, or recognition that markets over-corrected late in 2018.
Meanwhile, this mini-rally has made some early lemonade out of last year's portfolio lemons. Small names Big 5 Sporting Goods (BGFV) (+45%), Dean Foods (DF) (+22%), FreightCar America (RAIL) (+23%), JAKKS Pacific (JAKK) (+33%), NL Industries (NL) (+27%), and VOXX International (VOXX) (+30%), have all been beneficiaries of the year's early action, after suffering in 2018. Larger Newell Brands (NWL) (+13%) has also bounced nicely.
Whether this "lemonade" is sustainable remains to be seen. Frankly, the short-term returns are not all that important, but what is most fascinating in this index-investing based world is the amount of variability and inefficiency that still exists, especially within smaller, more distressed names.
On another note, my January 7th column explored, among other names, the curious case of Biglari Holdings (BH) , (BH.A) , a potential value investors dream (unless you've owned it as long as I have, then the correct term would be nightmare), that should be trading much higher (in my humble opinion), but has been a huge disappointment for a variety of reasons. BH owns the Steak n Shake restaurant chain, among other things, and I'd been waiting months for a local store to finally open. The opening was delayed from September to November, and the store finally opened last week. Ironically, that same store closed indefinitely after just one day (14 hours) of operation due to a fire, prior to its official grand opening event. Still didn't get that burger.
You can't make this stuff up.
