Domestic small cap equities are trading at significantly elevated valuation levels. This month we highlight some of the key data points relating to this overvaluation.

1. Market Perspectives - June 2014
Experience Insight Impact
Overview: Domestic small-cap equities, generally defined as those with
market capitalizations of less than $2 billion, are trading at significantly
elevated valuation levels relative to their large-cap peers and historical norms.
This month we highlight some of the key data points relating to this
overvaluation.
biegelwaller.com
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Small-Cap Equity Valuations

2. Experience Insight Impact
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The Russell 2000 is the
most closely followed
equity index tracking the
small-cap segment of the
market.
The Russell is trading at a
trailing P/E multiple of
55.2x and a current year
P/E of 25.8x. This
compares to the S&P 500
trading at 17.7x and 16.3x,
respectively.
The Russell 2000 Small Cap Index Appears Very Expensive

3. Experience Insight Impact
The Russell 2000 Small Cap Index Appears Very Expensive
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Compared to most major
markets around the globe,
the Russell 2000 Index also
appears very expensive on
a number of valuation
metrics.

4. Experience Insight Impact
Some of the Valuation Gap Has Begun To Correct This Year…
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The S&P 500 is +4.1% YTD
While the Russell 2000
is -3.1%
The Russell 2000 is trailing the
S&P 500 by ~720 basis points
this year. From its 2014 peak,
the Russell is down 6.95%.

5. Experience Insight Impact
The Valuation Correction May Not Be Over...
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• Even though small-cap stocks have underperformed so far in 2014, we believe the
valuation correction may not be over. As we have seen this year, small-caps can
underperform at the same time larger cap indexes are reaching new highs.
• Using trailing operating earnings, small-caps are still selling at a 19% valuation
premium relative to large-cap peers. Over the last 30 years, small and large-caps
have traded at P/E parity, highlighting the valuation gap that still exists.
• At current prices, we would caution investors as we anticipate some level of mean
reversion could continue to occur.

6. Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for any
specific person for any particular purpose. We utilize information sources that we believe to be
reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of
future performance; investing involves risk and may result in loss of capital. Consider seeking advice
from a professional before implementing any investing strategy.
Experience Insight Impact
Disclaimer
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