Fund Manager: Small Caps Still Strong in 2007

It's true that the blue-chipDow Industrials set the most watched records in 2006. But, once again, it was actually small caps that reigned supreme. For the 8th consecutive year, the Russell 2000 posted better returns than the S&P despite predictions the rally for the little guys would come to an end. Will the small caps winning streak continue in '07? CNBC’s “Squawk on the Street” asked Randy Bateman, CIO of Huntington Funds and Portfolio Manager of the Huntington Situs Small Cap Fund which carries a 4-star Morningstar rating.

Bateman believes that small cap equities will perform as well as the large caps in '07. He says strength in smaller companies stems from “The law of unintended consequences. Due to Sarbanes Oxley, it seems to me that a lot of companies in the small cap arena are capitulating; they’re turning over, they’re going private, (or they’re) willing to be bought out and that has created a floor in the market in the small caps. And we will see a lot of this take place continually in 2007."

(Sarbanes Oxley is a Federal Law passed in response to some major corporate accounting scandals. Aspects of the wide ranging legislation can be onerous on small companies making those companies more willing to be bought out)

Randy Bateman also feels that overseas markets will do better than domestic markets. “It might benefit us as we will see more foreign money come into equities – instead of financing our debt I think the Chinese might finance US corporations,” he said. “We’re in a really global market place and people can shift to where the demand will be coming from.”