All That Glitters Are Not Small Caps

Small caps are losing their luster, as hedge funds have found something that shines even better – gold. Warning signals of an impending correction have come fromCitigroupanalystAlbert Richards, who toldMarketWatchthat one indication is that the once supersonic small capRussell 2000was down 0.1% in April, while large caps, playing catch-up, ended the month up 1.2%.

“Valuations are starting to matter,”Steven DeSanctisofPrudential Equity Groupsaid in aMarketWatchinterview. “It looks like hedge funds are booking their gains and getting [out of small caps] and into commodities.” DeSanctis added that the next 12 months should be “a little dicey for small caps.”

MarketWatchsays small caps were expected to fall early in the year as investors would view them as overpriced, but hedge funds have kept the momentum going through the first quarter, until now.