US Small & Microcap Sub-Sector Chartbook
Dissecting US small & microcap sub-sector composition and performance
In this post, I will have a closer look at the sub-sector composition of the US small & microcap space. I will analyze the number of stocks over time, return statistics and the behavior of a multi-factor overlay. For this, I will use the Portfolio123 Screen UI.
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The Universe
As in the previous post, I will use a custom universe. I start with all US primary listings and then I exclude OTC stocks and MLPs, stocks with a median (50-day) daily dollar trading volume below $10,000, stocks with a price below $0.10. Furthermore, I exclude the upper third by market cap to create a pure small and microcap universe. The rules reduce the total US universe from 6,206 stocks down to 2,668 stocks.
For the global universe, I excluded the top 25% by market cap but since US stocks are inherently larger and more liquid, that would leave me with a lot of stocks above $1B market cap in the US. The exclusion of the top third by market cap makes the US market cap range more comparable while staying more flexible than a fixed absolute definition like a market cap below $1 billion. As of today, the largest stock in this simple universe screen is DRMA 0.00%↑ with $1.3 billion.
Sub-Sector Analysis
Due to the high number of sub-sectors, I will let the numbers and charts talk for themselves. The goal is to get an overview of the following topics for each sub-sector:
How many small & microcap stocks exist in this sub-sector over time?
How did the subset perform relative to US “microcap” ETF IWC 0.00%↑ ?
How did a selection of top stocks by a multi-factor overlay perform?
For this I will pick the top 10 stocks quarterly by P123 “Core: Combination”, a multi-factor composite ranking system combining well-known metrics to measure value, momentum, growth, sentiment, quality and low-volatility
What if we only pick sub-sector stocks with universe-wide ranks >90%
This is different from picking the top stocks from the sub-sector, no matter the absolute rank value.
If this much stricter system finds no stocks, it will stay in cash.
While this is not practical for direct trading, this test visualizes regime dependencies and, for example, whether the sub-sector making it into the top of the ranking is a “trap” or if this sub-sector is totally overlooked by a multi-factor ranking system.
For each case, I will use quarterly rebalancing and a 0.25% slippage setting. Sub-sectors without stocks are omitted.
Summary table:
Full universe
Unrestricted:
Top 10 multi-factor picks quarterly:
Business Services
Underlying sector: business services
Typical industries: marketing, admin, consulting, security, waste management
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Hospitality Services
Underlying sector: consumer services
Typical industries: hotels, restaurants, travel services
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Media and Publishing Services
Underlying sector: consumer services
Typical industries: broadcast, print media, publishing, entertainment programs
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Consumer Goods
Underlying sector: consumer cyclicals
Typical industries: apparel, footwear, leisure goods, appliances, furnishing
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Miscellaneous Retail
Underlying sector: consumer cyclical
Typical industries: auto retail, gas stations, pet supply, home builders
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Consumer Vehicles and Parts
Underlying sector: Consumer cyclical
Typical industries: consumer vehicle parts and manufacturing
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Consumer Retail
Underlying sector: consumer discretionary
Typical industries: apparel retail, electronics retail, home improvement stores
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Upstream Energy
Underlying sector: energy
Typical industries: coal/uranium/oil/gas exploration/production/services, tankers
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Downstream and Midstream Energy
Underlying sector: energy
Typical industries: LPG distribution, refineries, oil/gas pipelines/storage
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Banking
Underlying sector: finance
Typical industries: regional banks, mortgage banking, international banks
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Insurance
Underlying sector: finance
Typical industries: insurance brokerage, life/health/property/casualty/re-insurance
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Investment Services
Underlying sector: finance
Typical industries: asset management, financial advisory, investment banking, holding companies, trading services
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Real Estate
Underlying sector: finance
Typical industries: REITs, real estate services
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Specialty Finance and Services
Underlying sector: finance
Typical industries: finance software, commercial and consumer finance services
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Biopharmaceuticals
Underlying sector: healthcare
Typical industries: biopharmaceuticals (oncology, pain, neurological, etc.)
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Healthcare Services
Underlying sector: healthcare
Typical industries: health plans, admin services, patient care, nutrition
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Healthcare Equipment
Underlying sector: healthcare
Typical industries: diagnostic devices, medical instruments and supplies
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Industrial Manufacturing
Underlying sector: industrials
Typical industries: aerospace & defense, power systems, machinery
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Industrial Services
Underlying sector: industrials
Typical industries: transportation, logistics, distribution, construction
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Chemical, Plastic and Rubber Materials
Underlying sector: non-energy materials
Typical industries: plastic, rubber, fibers, paint, agrochemicals, additives
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Mining and Mineral Products
Underlying sector: non-energy materials
Typical industries: metal parts, ore/mineral mining, precious metal mining, construction materials
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Manufactured Products
Underlying sector: non-energy materials
Typical industries: wood and paper products, packaging, textiles
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Food and Staples Retail
Underlying sector: consumer non-cyclical
Typical industries: grocery stores, department stores, drug stores, discounters
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Food and Tobacco Production
Underlying sector: consumer non-cyclical
Typical industries: animal/crop/food/beverage/tobacco production
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Household Products
Underlying sector: consumer non-cyclical
Typical industries: personal care, cosmetics, baby accessories, small appliances
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Household Services
Underlying sector: consumer non-cyclical
Typical industries: educational and personal services
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Electronic Components and Manufacturing
Underlying sector: technology
Typical industries: electronic components & equipment, semiconductors
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Hardware
Underlying sector: technology
Typical industries: commercial/consumer electronics, IT/communication hardware and equipment
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Software and Consulting
Underlying sector: technology
Typical industries: software, data services, video games, tech consulting
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Telecommunications
Underlying sector: telecommunications
Typical industries: satellite services, wireless services, telecom services
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
Utilities
Underlying sector: utilities
Typical industries: electric, gas, water utilities
Unrestricted:
Top 10 multi-factor picks quarterly:
Top 10 multi-factor picks quarterly (if universe-wide rank > 90%):
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Disclaimer
This publication provides general information on systematic investing and Portfolio123 strategies for educational purposes only. It is not personalized financial, investment, tax, or legal advice. All content reflects my independent opinions and analysis. I may hold securities mentioned in posts. Past performance does not guarantee future results. Investing involves significant risks, including potential loss of principal.
No recommendations: Do not buy, sell, or hold any securities based on this content. Consult qualified professionals before making investment decisions.
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