This portfolio manager suggests investors switch to small caps

The U.S. Federal Reserve is likely to raise interest rates next year that could higher multiple stocks. For investors looking for ways to hedge against it, Sandy Villere of Villere & Co says switching to small caps could be a smart move.

Villere’s remarks on CNBC’s “Power Lunch”

Villere quoted historical data to highlight that small caps usually outperform when Fed raises rates. Commenting further on why he’s long small caps, he said on CNBC’s “Power Lunch”:

The Russell 2,000 index has outperformed the benchmark SPX with an over 100% gain since the pandemic low in March 2020, versus a nearly 95% gain in S&P 500.

Villere likes Palomar Holdings: here’s why

One small-cap name that pops out to Villere, in particular, is a California-based insurance company Palomar Holdings Inc (NASDAQ: PLMR) – a high growth stock that is down about 11% year-to-date.

Earlier this month, Palomar entered fronting sector of the U.S. insurance market. The $2.16 billion company has a price to earnings ratio of 203.10.