Ask most investors where they want to invest these days, and most will tell you that some of the best opportunities are right here in the good US, and many of these investors are Europeans themselves. According to Investment News, European pension funds and their equity managers are stepping up engagement with the U.S., according to advisers, managers and pension fund officials. And the uncertainty surrounding the euro and its impact on the eurozone economy is pushing investors faster into the arms of Uncle Sam.
Many investors are particularly attracted to small capital in the US, where estimates are attractive and according to published research Furey Research Partners less than 20% of small-cap public revenues come from outside the United States. But it is important not only the salary, but also the assessment. A small capitalization is usually judged by forward earnings, which can be very sensitive to U.S. GDP growth. This is where a good active manager can really add tremendous value, as a good manager with a small capitalization will look for companies with sustainable growth and have historically shown some resilience to the US economy, such as the utilities sector.
Another reason for focusing on small US capitalization is that the market may be trying to determine the price in the next round of quantitative easing by the Fed and love it or hate it, because the saying “don’t fight the Fed” really applies to the small capitalization space. as in the last two rounds of QE, the Russell 2000 index rose by an average of 20% over the next three months and more than 40% over the next six months (Russell 2000 is by far the most common benchmark for mutual funds called itself “small capitalization”, while the S&P 500 index is used mainly for shares with large capitalization).
Although there are still risks to the U.S. economy, many U.S. companies have accumulated large stocks of cash on their balance sheets, allowing them to increase growth through mergers and acquisitions. According to an article in the Wall Street Journal of January 2, 2012, entitled “Wall Street Renews Optimism for Dealing,” an Ernst & Young poll estimates that “36 percent of companies plan to make acquisitions this year.” Due to the fact that many executives of publicly traded companies are under pressure to increase shareholder value, acquiring a smaller company with higher growth rates and technological innovation seems a sensible way.