While the last year has been a period where practically all stocks, regardless of style or size, have risen, some stocks have risen more than others. Small caps (Russell 2000) have risen 95%, while large caps (S&P 500) are up a relatively modest 68.5%. This trend, however, is anything but a recent one. Small caps have essentially been outperforming large caps for the last decade. The chart below shows the ratio of the S&P 500 divided by the price of the Russell 2000. When the line is rising, large caps are outperforming small caps, and when the line is declining, small caps are outperforming.

Based on the relationship between the S&P 500 and the Russell 2000, relative performance between large and small cap stocks follows long-term cyclical trends. As shown in the chart below, periods of outperformance and underperformance by either category are measured in years rather than months. Even with the typical cycle lasting several years, though, the current cycle has been the longest of them all. After peaking out in 1999, large caps have been consistently underperforming small caps for ten years and counting. When it ends is anyone's guess, but it's hard not to argue that large caps are at least due for their day in the sun. (Click to enlarge)

The volume of share trading for key index funds is going down while the price is going up. Should we say the smart money is quietly accumulating shares, or should we say that the smart money is on the sidelines while the dumb money pushes prices higher?

TrimTabs reported that mutual fund cash positions are very low at about 3.6% after an unusual reduction in cash positions in the past month. When mutual fund managers unload cash, markets generally go up.

For those interested, below we provide a table highlighting the performance of key ETFs across all asset classes over the last month, 6 months, and year. Over the last year, just three ETFs shown are down -- Natural Gas (UNG) at -48%, 7-10 Year Treasuries (IEF) at -4%, and 20+ Year Treasuries (TLT) at -13%. The best performing ETF shown over the last year has been Russia (RSX) with a gain of 175%. India (INP) ranks second with a gain of 165%, and the Financial sector ETF (XLF) ranks third with a gain of 144%. Also worth noting is that the S&P 500 equalweight ETF (RSP) is up 102% over the past year, while the cap-weighted S&P 500 ETF (SPY) is up just 68%.

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