Each time SPY has a good year, it seems SLY has an even better one. Since 2006, when SPY delivered at least 15% annual returns, the ETF of small caps beat SPY on average by 740 basis points. In the years where SPY didn’t do well, SLY only did slightly worse.
What kind of year are we in for in 2014? Most Americans see a flat or lower stock market this year while experts seem to be slightly more optimistic, expecting high-single-digit or low-double-digit gains from the S&P 500 in 2014. So really, that’s not actually great news for the small-cap index.
With the five-year bull run getting long in the tooth, the route to success might be a modified Dogs of the Dow approach, picking last year’s small-cap laggards to be this year’s winners. Bespoke Investment Group has a table that shows how 2013′s worst-performing stocks from the S&P 1500 fared in the first week of 2014, and I have picked three small caps from that list that I like to outperform in 2014.