(New York)

Small caps are in a major rut. The Russell 2000 peaked in August and is now on the verge of a bear market since then. Interestingly, small caps have fallen farther than their larger peers despite the fact that they are insulated from headwinds like the trade war. So how to pick them? The answer is to stay away from indexes and actually choose individual shares whose fundamental outlooks appear brighter than benchmarks. For instance, one fund manager says that investors should choose “quality value stocks” with “with high free-cash-flow yield, low net debt to earnings before interest, taxes, depreciation, and amortization, or Ebitda, and below-market volatility”.

FINSUM: Small caps are a hugely diverse sector and some shares will inevitably have bright outlooks no matter what else may be going on in the market. The issue, of course, is the time and selection necessary to find such shares. Perhaps actively managed small cap value funds are a good bet?