Here is a follow up to the article I wrote on the January Effect in small caps. It found the effect especially pronounced following a terrible year in stocks. The bottom quartile of stocks returned roughly 18% in the January following the worst 10 years for the S&P since 1927 with no down years.
The easiest method to take advantage of this effect is to go long a microcap ETF (IWC, PZI), or for the more risk averse, go long a microcap ETF and short a large cap ETF (VTI, SPY).
Other research shops (Ned Davis being one) have found that the effect is even more pronounced for small caps that are down the most from their highs, and that the returns begin about now (mid-December).
Investors looking for more juice and risk could screen for a list of microcaps down the most this year, and go long outright or with a hedge. The charts of the stocks are nasty, most trade for around $1, and many have terrible fundamentals and are probably going out of business. What’s not to like? I have not done any research on these tickers so buyer beware.
Here are a few screens below. If an users have a screen they want me to run leave a comment and I’ll add it:
In the Russell 3000
Market Cap <$150 million and > $30 million
Ranked by how far they are down:
SSCC
CROX
SIL
CAR
SPSN
IDT
SRZ
BGP
MCGC
ANO
In the Russell 3000
Market Cap <$150 million and > $30 million
Down at least 80% from the 52-week high
Ranked by how many insider buys there have been in past 6 months:
AMPL
CMLS
PRS
ETM
GBE
CHTP
SIRF
RAME
SNIC
TRMA
