Barron’s Asks Francis Gannon: Are There Unseen Dangers in Small-Cap Stock Rally?
article 01-23-2018

Barron’s Asks Francis Gannon: Are There Unseen Dangers in Small-Cap Stock Rally?

Co-CIO Francis Gannon tells Barron’s that while there may be unseen dangers in the small-cap stock rally, there is also evidence the economy is better than the consensus realizes.

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Barron’s writer Brett Arends recently asked Royce & Associates Co-Chief Investment Officer Francis Gannon if there are unseen dangers in the current small-cap stock rally.

“Many people are making the bull case for small-caps as an asset class, and it’s an appealing one,” says Arends. But, he continues, “there are more risks out there than many investors realize.” Specifically, he says, “small-caps today are expensive by historical standards,” and as a group, “they are less profitable, more heavily in debt, and more exposed to the threat of rising interest rates than many investors may realize.”

Gannon shares some of Arends’ concern. “There’s a lot of financial leverage that people aren’t thinking about,” he says. But, as Arends notes, “even the cautious Gannon thinks the economy is better than the consensus realizes,” even while the asset class as a whole appears risky. (However, Gannon is confident in the prospects for selective small-caps—specifically those with steady or growing earnings in cyclical industries with global exposure.)

Read the full article here (registration required).

Important Disclosure Information

The thoughts and opinions expressed in the article are solely those of the persons speaking as of January 20, 2018 and may differ from those of other Royce investment professionals, or the firm as a whole.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

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