Video

Why Abandon a Rising Star?

Many investors allocate their U.S. equity holdings among both large-cap stocks for their relative stability, and small-cap stocks for their expectational upside, which refers to the potential for companies to significantly outperform market expectations over the long term. But what happens to the opportunity offered by small-caps when they become mid-caps?

Transcript

Tina Jones: Many investors allocate their U.S. equity holdings among both large-cap stocks for their relative stability, and small-cap stocks for their expectational upside, but – in doing so – they fail to recognize that this rigid approach may force them to make reallocation decisions based on an arbitrary market-cap cutoff rather than on investment merit.

But what happens to the opportunity offered by small-caps when they grow into mid-caps?

Managers of small-cap funds are typically obligated to abandon them – even when they have not reached their full potential.

But why sell stocks that have consistently outperformed their smaller and larger peers over time?

Small/mid-cap managers are uniquely positioned to identify these rising star stock opportunities early in a company’s lifecycle, and can hold them so they may reach their full potential. In addition, mid-cap companies – in general – have more seasoned management and more attractive risk/return profile than their small-cap peers.

Each of these reasons we offer Pacific Funds Small/Mid-Cap – which allows investors to continue holding these rising stars.

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