Top U.S. fund managers prepare for bear market in small company stocks

NEW YORK (Reuters) – The shares of small companies in the U.S. haven’t technically fallen into a bear market yet, but several top-performing fund managers are acting as if it is inevitable.

FILE PHOTO: A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., December 4, 2018. REUTERS/Brendan McDermid/File Photo

Small-cap fund managers from firms including Needham Funds, Wells Fargo, and Hodges Capital Management are trimming their winners, shedding stocks they think will not be able to weather an economic downturn, and raising cash, all in anticipation of more pain to come as the benchmark Russell 2000 sits approximately 19 percent below a record high reached in August. 

The value of small-cap shares – generally those with market values of less than $5 billion – soared earlier this year as decades-low unemployment, a surging housing market, and the expectation that domestic companies would be immune from global trade wars drew investors into their stocks. Yet rising interest rates, falling oil prices and signs that small-caps were not as insulated from trade concerns as investors originally thought have upended the rally.

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The Russell 2000 was up slightly, 0.11 percent, in early trading Monday.

“It’s been awfully painful since September,” said Gary Bradshaw, a portfolio manager at Dallas-based Hodges Capital.

As a result, Bradshaw has been lightening his portfolio, selling out of approximately 10 holdings to concentrate his fund into the 50 stocks that he expects have the strongest balance sheets and

Keep reading this article on Reuters Personal Finance.