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“January Effect” Begins Now

December 16, 2011

Followers of The Stock Trader’s Almanac are probably familiar with the “January Effect” that shows how small-capitalization companies have historically crushed large-cap stocks during the first month of the year. According to Yale and Jeffrey Hirsch, small-caps have delivered a forceful blow to their larger counterparts in 40 out of 43 years from 1953 through 1995.

But if you dissect the performance of the small-cap Russell 2000 Index versus the large-cap Russell 1000 Index from December 15 through the end of February, you’ll see that for the last 30 years, most of the “January Effect” actually occurred within the last two weeks of the year.

Small-Caps Outperformed Large-Caps Beginning December 15
Average Returns, 12/1979 to 2/2010
  Russell 2000 Index Russell 1000 Index
12/15 - 12/31 3.1% 1.6%
12/15 - 1/15 4.2% 2.1%
12/15 - 1/31 4.6% 2.5%
12/15 - 2/15 5.9% 3.0%
12/15 - 2/28 5.7% 2.5%
Note: Mid-month dates are the 11th trading day of the month; month end dates are monthly closes.
Source: Stock Trader’s Almanac 2011

Yale and Jeffrey Hirsch say, “With all the beaten-down small stocks being dumped for tax loss purposes, it generally pays to get a head start on the January Effect in mid-December.” Historically, our investment team has sought small-cap junior mining and natural resources stocks because of their historical ability to add alpha. This time of year—similar to merchants offering discounts to holiday shoppers—may be an opportune time for investors to shop for small-caps.

I’m very excited to have Jeffrey Hirsch as a special guest presenter on our January 10 webcast. We’ll talk about how to use historical cycles to spot opportunities in the marketplace. From gold to grains, cycles can signal when, where and why it may be a time to invest.

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 1000 Index is a U.S. equity index measuring the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.

Net Asset Value
as of 11/24/2014

Global Resources Fund PSPFX $8.23 -0.14 Gold and Precious Metals Fund USERX $5.64 -0.04 World Precious Minerals Fund UNWPX $5.12 0.01 China Region Fund USCOX $8.20 0.12 Emerging Europe Fund EUROX $7.43 0.03 All American Equity Fund GBTFX $33.36 0.11 Holmes Macro Trends Fund MEGAX $23.42 0.14 Near-Term Tax Free Fund NEARX $2.26 No Change China Region Fund USCOX $8.20 0.12