Small caps’ breakout is just starting, $17 billion money manager predicts

Finance

Bryn Mawr Trust’s Jeff Mills is making a big bet on the economic recovery.

After years of decline, he predicts small-cap stocks’ 2020 comeback will deliver even bigger gains to investors next year.

“We’re at this point where monetary policy and fundamental economic growth, at least in our opinion, line up,” the firm’s chief investment officer told CNBC’s “Trading Nation” on Wednesday. “On top of that, you have the fiscal stimulus.”

The Russell 2000, which tracks small caps, is on the verge of having its best quarter on record. Despite some recent weakness, Mills is confident stars are lining up for the economically sensitive group.

“If you pull your lens back and look at the longer-term chart history, you know they’re just breaking out now,” he said. “Those stocks are now breaking out of a 2½-year bear market.”

Mills, who has $17 billion in assets under management, believes small caps will outperform large caps next year as market leadership continues to change to reflect a stronger economy.

He predicts the coronavirus vaccine and benefits from massive economic stimulus will drive investors from crowded large cap, momentum technology trades and into smaller companies tied to growth.

“I don’t think you’ll see a massive bubble pop, but from a performance standpoint that’s where you’re going to see laggards,” the CNBC contributor added. “I would rather be in high-quality cyclicals.”

Mills became bullish on small caps earlier this year. In just the past three months, the Russell 2000 has surged more than 31%.

“From a value perspective, you’re going to do well in small caps,” Mills said.

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