In The Media

Market participants call small-cap tick pilot disappointing – ITG’s Phil Pearson

March 16, 2017

Small-cap stocks have seen a surge in returns over most of the pilot time period, but Messrs. Kinat and Pearson said that’s more because of the election of Donald Trump and is correlated more with the overall rise in U.S. markets.

Pearson_Phil“I find it hard to believe that any of that increase is due to the tick pilot,” said Mr. Pearson.

Total returns of the Russell 2000 small-cap equity index bear this out. While the index has risen 11.2% from pilot inception on Oct. 1 through March 6, it was down 4.41% from Oct. 1 to Election Day Nov. 8 and then rose 16.34% from Nov. 9 to March 6.

The bigger impact for small-cap money managers, said Mr. Pearson, is the increase in trading costs. “Trading costs (for small-cap stocks) are up 15%. Research shows the cost of the pilot vs. the control group is the cause, so it’s 15% above any rise in costs for small-cap trading anyway,” he said. “(Managers) have probably added that into their models. But for returns, there’s not a major impact.”

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