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Small-cap US stocks: An economic play
Small-cap US stocks: An economic play © isak55/Shutterstock.com

Small-cap US stocks: An economic play

The U.S. economy is likely to continue its recovery next year, with growth of 2.5 to 3 percent, says Nick Colas, chief market strategist of Convergex brokerage in New York City. Meanwhile, the European economy is still quite weak, he notes. 

And while small-cap companies typically earn most of their revenue domestically, larger companies generate 20 to 30 percent of their revenues from European countries, Colas says.

"That's a tough hole to fill in 2015. It looks like there will be a triple-dip recession in Germany," he says.

In addition, the Russell 2000 small-cap stock index has underperformed the S&P 500 this year, he points out. While the S&P 500 has returned 12.4 percent, the Russell 2000 has returned only 2 percent.

For all of these reasons, "investors have to focus on smaller companies with more exposure to the U.S.," Colas says.

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