Small caps underperforming Tsx venture composite index which tracks about 500 smaller size companies that are not trading on the Tsx is up 5.91% year to date. The Venture composite index reached a peak on Feb 19 at 1,098.56 and today it closed at 941.62 which is a decline of 14.28% from its peak.
S&p/tsx composite index which tracks around 250 of the largest companies on the tsx is up 15.67% year to date. On Feb 19th the S&p/tsx composite index closed at 18,384.27 and today it closed at 20,270.65 which is a gain of 10.26%. If we compare the 2 indices we can see that 2021 is shaping out to be a better year for the larger companies so far.
If we look at the bigger picture we can see that the small caps outperformed the broader markets in 2020 by a significant amount but have underperformed this year to date. Perhaps investors in these smaller size companies are worried that growth in the coming months/years will be artificially high due to inflation. As is usually the case when there is market uncertainty, people tend to flock to the safer investments; I.e, the large caps, and then switch to the small caps when the fear dissipates. I do not know when the market will turn but my guess is that when inflation numbers normalize due to the pandemic and people resume regular economic activities then we can see a return to small cap outperformance in the months and years ahead.