Ask most investors where they are looking to invest these days and most will tell you that some of the best opportunities are found here in good old America and many of these investors are Europeans themselves. According to Investment News, European pension funds and their stock managers are increasing their exposure to the United States, according to pension fund consultants, managers and officials. And the uncertainty surrounding the euro and its impact on euro zone economies is pushing investors more quickly into the arms of Uncle Sam.
Many investors are especially drawn to US small-cap companies, where valuations are attractive and according to published research Furey Research Partners Less than 20% of publicly traded small-cap income comes from outside the US But it’s not just earnings that matter, it’s valuation. Small cap prices are typically based on future earnings, which can be very sensitive to US GDP growth.This is where a good active manager can really add tremendous value, as a good small cap manager Capitalization will seek companies with sustainable growth and historically they have shown some resilience to the US economy, such as the utility sector.
The other reason to pay attention to the small cap of the US is that the market may be trying to fix the price in another round of quantitative easing from the Fed and love it or hate it, as the old saying goes “don’t fight it. Fed “really applies to the small-cap space. As in the last two rounds of QE, the composition of the Russell 2000 index has rebounded an average of 20% over the next three months and more than 40% over the next six months (The Russell 2000 is by far the most common benchmark for self-identifying “small-cap” mutual funds, while the S&P 500 is primarily used for large-cap stocks).
While there are still risks to the US economy, many US companies have accumulated a large supply of cash on their balance sheets, allowing them to increase growth through mergers and acquisitions. According to an article in the Wall Street Journal dated January. On February 2, 2012 and titled “Renewed Deal Optimism On Wall Street,” an Ernst & Young survey anticipates that “36 percent of companies plan to make an acquisition this year.” With many CEOs of publicly traded companies being pressured to increase shareholder value, acquiring a smaller company with higher growth rates and technological innovation seems like a smart way to do it.
