Why Private Equity Is Making Small-Cap Investing Harder
It’s getting tough out there for the little guys.
Small-cap stocks have started to lose some of their performance zing compared with large caps. The reason: Private equity and venture capital firms have been snapping up many promising small companies that otherwise would likely have gone public, wresting those potentially lucrative opportunities away from public investors. Over the past two years there has been a widening gap in quality between large-cap and small-cap stocks, according to a recent Morningstar analysis. That includes returns on assets, returns on equity, net margin and debt-to-capital ratios showing that overall, small-cap stocks have increasingly weaker fundamentals compared with large caps, Morningstar passive…
