Small stocks give back all of their 2017 gains

Russell 2000 gives up its gains

Sometimes bigger really is better.

So far this year, the , which tracks the performance of large U.S. stocks, has surged 8.5 percent. But the small-cap-tracking Russell 2000 is now very slightly lower year to date, after sliding 5.5 percent in the past month to give back all of its 2017 gains.

Chad Morganlander, a portfolio manager at Washington Crossing Advisors, doesn't expect the index to turn around anytime soon.

"We expect overall performance to be subpar until year end," Morganlander wrote to CNBC on Monday. "Valuations need to adjust. Investors should be cautious at this point in time."

Indeed, the current forward price-earnings ratio for the S&P 500 is 17.3 according to FactSet numbers, while the Russell's P/E ratio is above 20.

To be sure, it is typical to see smaller stocks trade at higher valuations, since they are often thought to have more potential earnings upside, and the Russell's valuation premium is in line with recent levels.

But Morganlander's point reflects his general thesis that U.S. equities are vulnerable at this time.

"We're a little more cautious on the overall market and small caps, historically, have a lot more beta than large caps," he said on CNBC's "Trading Nation," referring to a common measure of leverage to overall market moves. The Russell currently has a beta of about 1.15, meaning that if the S&P 500 falls 10 percent, the small-cap index could be expected to drop 11.5 percent.

"We would stick with large-cap growth for the time being" since "it looks as if risk is going to be more elevated over the next three to six months," Morganlander said.

Piper Jaffray technical analyst Craig Johnson agrees that large stocks are the way to go, but for him, the calculus is more straightforward.

"Large-cap stocks are still gaining on a relative basis against mid- and small-caps," Johnson said Monday on "Trading Nation," meaning that the former is outperforming that latter two.

"Because of that, I'm going to stay with the large caps right now," and won't change strategies "until I see a change in relative performance," Johnson added.