All posts from in,

Small-Cap Activism vs. Large-Cap Activism [Part 1]

Small-Cap Activism vs. Large-Cap Activism - Part 1 by Troy Marchand, Foundry Capital

Over the next few weeks, I want to discuss my thoughts on why micro- and small-cap activism generate higher returns over time. I view micro and small cap stocks to be a more inefficient asset class. Fewer analysts/investors researching small stocks, fewer dollars able to be invested, less Wall Street research coverage, and illiquidity cause more micro- and small-cap stocks to be mispriced, in my opinion. versus larger cap stocks. In the future, I will look to provide some research from academia to back up my hunch. I then want to combine micro- and small-cap investing with activism and see how the results compare versus larger cap companies.

To start with, the sheer number of companies trading at under $500 million in market cap is many times the number of companies trading over $5 billion. To use a rough approximation, I calculated using Capital IQ, and there are 3,250 companies under $500 million in the market, while there are about 1,000 companies trading at over $5 billion in market cap. My sense is that as the biggest money managers continue to get larger and assets have been flowing to the largest hedge funds, it will...