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Is Wall Street Worried About Small Caps? Yes And No

Small caps have outperformed their larger counterparts for several years now: the S&P SmallCap Index returned 45% in the last three years -- that’s almost double the S&P 500’s 26% gain. Will the run last through 2007?

David Ellison, Fund Manager at FBR Small Cap Financial Fund, told “Closing Bell” that well-financed small caps will continue to do well.

However, he told CNBC’s Maria Bartiromo that institutionally financed ones may run into trouble. “Everybody on the institutional side is analyzing what they have loans out to, whereas the retail guys, they don’t care because they have deposit insurance to back them up,” he said.

“There’s a market share shift here,” Ellison added. “It’s not going to happen quickly. But, over the next couple of years, the more traditional, more conservative companies are going to benefit.”

Ellison’s fund owns traditional banks that are primarily depositories and loan makers. “They’ve been hurt in the sense that everybody’s worried about it, but they’ve not been hurt on the earnings side.” Rather, Ellison said their biggest problem has been rising rates.