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Fund Times

GMO Turns Negative on Small Caps

Plus, FDIC-insured 529 bill moves through U.S. Congress.

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U.S. small-cap funds have been soaring. The average fund in Morningstar's small-cap blend category is up more than 55% over the past year through April 29. But these outsized returns aren't likely to continue, according to one prominent asset manager. That's because the recent run has made most small-cap stocks overvalued.

GMO, which has a successful track record in forecasting asset class values and their subsequent returns, now thinks U.S. small caps will return a negative 1.2% in real terms (registration required) over the next seven years. It is the first time the firm has projected negative returns for the asset class since Dec. 31, 2007, when it forecast similar negative returns.

Ryan Leggio does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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