Why This Asset Manager Is Increasing Exposure To Mid- And Small-Cap Stocks

With the NASDAQ Composite (INDEXNASDAQ: .IXIC) fiddling with 5,000 mark, the Street is debating whether the market has reached overvaluation levels. Ryan Jacob from Jacob Asset Management feels that now is the time to decrease exposure to large-cap stocks and start looking at the mid- and small-cap companies.

Jacob was on CNBC recently to share his views on the valuation of the overall market and whether biotech is the most overvalued sector of all.

Mid- And Small-Cap Stocks A Better Bet?

“On a large cap index, it's – obviously we are talking about a market-cap weighted index here – so, a lot of the growth we saw last year starting this year is in the largest companies. Apple is now almost 10 percent of the NASDAQ, which is astounding,” Jacob said.

“We started to downshift a bit. We are seeing some better opportunities in the small-, mid-cap space.

“We are seeing better valuation relative to the growth potential. We tend to focus more on companies that are growing maybe 20, 30, even 40 percent plus, and valuations down there are not very extended [comparatively].”

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It'll Be A Better Year

When asked about whether he thinks that the biotech sector is the one sector that's most overvalued in NASDAQ, Jacob replied, “It's definitely been the best-performing sector for the last several years; it's amazing how much it is encompassing more and more of the NASDAQ. Technology today is less than half of the index.

“The real story is last year was a very difficult year for a lot of money managers because you had a very thin layer of the top companies and the top indexes deliver all the performance, and we think this year we will see a bit of a reversion as the economy is improving. Investors' risk appetite may increase. Valuations are more reasonable. We think it's a good combination,” Jacob concluded.