A firm's market capitalization is defined by its number of common shares outstanding multiplied by its share price. Alphamont believes there are more opportunities to find undervalued stocks that can produce positive alpha by including small and middle capitalization stocks in its investment universe. The cut-offs for determining small, middle, and large capitalization categories varies within the investment community. Alphamont defines market capitalizations as follows:
- Small-Cap: between $1 billion and $10 billion in market capitalization
- Mid-Cap: between $10 billion and $50 billion in market capitalization
- Large-Cap: greater than $50 billion in market capitalization
A firm's capitalization changes over time with changes in number of outstanding shares and share price. To the right, are holdings in Alphamont's model portfolio by capitalization as of December 31, 2017.
As a general rule, Alphamont does not invest in stocks with market capitalizations under $1 billion dollars, but may make an exception if and only if the firm has more than $1 billion in total assets. This rule helps us avoid investing in companies that are too small and risky for our strategy, and helps narrow our investment universe significantly.