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Small-cap companies with an almost 400% return

Thursday, 28 Aug 2008 | 9:53 AM ET

So far this year, the Russell 2000 index of small-cap companies continues to outperform the Dow, and the S&P 500. The Russell 2000 has advanced by nearly 7% in the past six months, compared to a 6.23% decline for the Dow Jones Industrial Average, and a 3.68% drop in the S&P 500. Although the Nasdaq 100 is leading the way with a gain of nearly 9%, companies in the Russell 2000 have had the biggest percentage gains year-to-date.

While some of these companies average only a $1 billion dollar market capitalization, their valuation and pricing power could be of interest to investors. Nancy Tooke, who manages the Eaton Vance Specialty Equities Fund , said that there is value in small-cap companies. The Eaton Vance Specialty Equities Fund is up by 13.91% in the past six months, as the fund focuses in small-cap growth companies within sectors such as energy, industrial, and materials. According to Morningstar Inc., an independent provider of investment research, out of 2,100 diversified U.S. mutual funds, only 17 are up this year, making Eaton Vance Specialty Equities Fund a rare find.

Among 2000 small-cap companies that are part of the Russell Index, 534 are up by over 10% year-to-date. The largest number of companies within this group are part of the Industrial sector, followed by Financials, and Health Care. In contrast, consumer staples companies account for the smallest portion of the group. The table below depicts the 534 companies that made our list, grouped by sector performance.

A global economic slowdown could also benefit small-cap companies as investors regain interest in smaller U.S. based corporations with less exposure to international markets. Jordan Kotick, Global Head of Technical Analysis at Barclays Capital, suggested that a key technical level to watch in the Russell 2000 Index is a possible break out from its high in early June. Currently, the Russell 2000 is down by 2.5 % in the past three months, while the Dow is off by 9%, and the S&P 500 is down by 8.48%. The Nasdaq 100 has declined by 6% during the same period.

The following table shows the top 20 percent-gainers in the Russell 2000, excluding any companies with a share value below $5.


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