Small Caps Limp to the Finish Line
After remaining fairly level throughout much of April, small caps fell roughly 4% over the last four trading sessions of the month. While also down over the last few days of the month, larger caps did not suffer as severe a drop. Given that small caps have outperformed year to date, perhaps the move was something of a mean reversion. Additionally, the old adage “sell in May and go away” has begun making its rounds in the media. Investors hewing to this advice may have responded by closing out positions into the end of April.
Although the small cap index, as represented by the Russell 2000, fell into month end, there are still plenty of opportunities in the market. Most large cap companies have now reported Q1:15 earnings but small caps, on the other hand, often report in the first two weeks of May, ahead of the mid-month reporting deadline. With this in mind, identification of companies that are poised to deliver positive earnings reports offers opportunity to generate alpha.
Recapping the table above, for April, the S&P 500 was up 0.75%, the Russell 2000 was down 1.19% and the aggregate Singular List was up 1.89%. For the trailing twelve months, the S&P was up 10.11%, the Russell 2000 was up 4.88%, and the Singular Research List was down 5.56%.
Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was recent initiation Supercom (SPCB). The company announced earnings results for its fourth quarter toward the end of March and the shares have continued to run since then, driven by continued attention on the internet security space. Looking at the rest of our Top 5 performers, Top Ideas for 2015 list member CMT appears again as a repeat top 5 name from last month. Other names on the list bucked the overall result for the Russell 2000, driven by a variety of factors.
Our worst performers in April saw their monthly returns driven by various factors or, in some cases, the absence of anything positive to push shares higher. In particular, our worst performer was Vertex Energy (VTNR). The company is required to issue new equity as part of its recent credit agreement modification. With that overhang present, investors have little near-term motivation to be buyers of the shares. We remain optimistic regarding the long term prospects for the business and view this issue as one which will be temporary.
At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge. We thank our clients for your support of independent equity research.
Jeremy Hellman, CFA
Director of Research/Chief Operating Officer