Size

There’s a lot of whistling through teeth and taut chops on the rolling and the scrolling of the 24-hour financial TV channels, whose editors, given the hunger for anything breaking on Covid, the Fed or the steamy inbound election, have enough material to frighten even the most confident of bulled-up investor. There is, for those just back from the cabin, a lot of uncertainty around, lots of macro cross-currents. And as autumn breaks, so too it appears do markets, with the S&P 500 etching lower, weekly lows. One of the crisp points of YTD performance has been not only in the narrow breadth of the market holler higher, but in the context of market capitalisation. The big have got bigger. The rest have not. Many are half what they were. The charts and statistics are well aired, but for those plotting a course through the close of a grisly 2020 and beyond into 2021, 2022, there is in the shadow of the tech-flavoured, stay-at-home Covid pow-wow, a rich seam of potential alpha in the mid-cap space. It is easy to be sucked in to the media’s spin of a ‘second wave’ but there is a recovery happening. And happening amidst evidence that the virus may not be as deadly as first feared back in the wide-eyed days of late March. The polarisation of performance then has not only left valuation disparities at 20-year highs, both at a market level and within individual sectors; it has also stretched the elastic between the big and the not so big. Dice the S&P by size groups, and it is evident that the catch-up trade through 2021 could be found deep in the belly of the index, in many of the mid-cap stocks that, rightly or wrongly, have worn 2020 so hard. From theme parks and DRAM manufacturers to industrial equipment rental companies; and many others in between. This involves old-fashioned bottom-up work, a long way from the click-click ETF smart-buying option of recent years. Regime change happens slowly, but if the algorithms turn sellers of many well-held baskets of high-flying names, there might not be many fundamentals buyers to be found on the other side. They could well be off looking elsewhere.