Francis Gannon, Royce Investment Partners co-CIO, joins ‘Power Lunch’ to discuss small caps and whether they’re the best hedge against inflation. For access to live and exclusive video from CNBC subscribe to CNBC PRO:
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Small caps are a great way to hedge against rising inflation, according to Francis Gannon, co-chief investment officer of Royce Investment Partners. In a recent interview with Yahoo Finance, Gannon explained why small cap companies are a smart bet during inflationary times.
Firstly, small cap companies tend to be more domestically focused, which means that they are not as exposed to international trade. This can be an advantage in an inflationary environment, as small companies that focus on domestic sales are less likely to be impacted by rising tariffs or other trade-related disruptions. Additionally, smaller companies tend to be more nimble and able to pivot quickly to adapt to changing market conditions.
Secondly, small cap stocks often have a lower correlation to inflation than larger cap stocks. This means that small companies may experience lower volatility during periods of inflation, which can be a benefit to investors seeking stable returns. Additionally, small caps tend to have less exposure to interest rate risk than larger companies, which can also be a plus in periods of inflation.
Thirdly, small cap stocks have historically outperformed larger cap stocks during periods of rising inflation. Gannon notes that small caps have outperformed large caps during 17 out of the past 20 periods of inflation since the 1960s. This trend is driven by several factors, including the fact that small cap companies may be more focused on sectors that perform well during inflation, such as energy, commodities, and materials.
Finally, Gannon recommends that investors focus on high-quality small cap companies that have strong balance sheets and solid fundamentals. By investing in companies with strong financials, investors can help mitigate the risks of inflation and benefit from potential upside during inflationary times.
In short, small cap companies can be a smart investment during periods of inflation. By focusing on small caps that are domestically focused, have lower volatility, and historically outperform during inflationary periods, investors can potentially benefit from stable returns and upside potential. As always, it is important to conduct thorough research and consult with a financial advisor before making any investment decisions.
How did that play out for you? Just because small caps underperform doesn't mean they should outperform. Small caps are closely tied to the economic cycle. And it was clear way back in Q2 2021 that the cycle is in mid cycle and entering late cycle back then. No one in their right mind would be investing in small caps in a mid cycle let alone a late cycle.
Plug Power!
Everything reeks inflation in the economy…. I don't know who, however a person desires to pay attention to this, you have to stop relying on the government and saving all of your money . Venture into making an investment a few in case you actually want monetary freedom
people are speculating on small caps. That's why they rose up today. Majority of them are just bleeding money every earnings call anyway.