Small Cap and MidLarge Cap Index – SMLL / MLCX
Small Caps are the smaller size companies listed in the Stock Exchange. Usually, these are traded in smaller volumes and sometimes, even spend a few days forgotten, away from the trading sessions. They usually mean larger risks due to smaller liquidity and, in many cases, have stock prices stuck in the cents column. This doesn’t mean, however, they are inferior in quality and show a smaller potential for growth – sometimes is just the opposite.
MidLarge Caps, on the other hand, are listed companies that have higher market caps.
The Small Cap Index, or SMLL, in Portuguese, measures the return of an imaginary portfolio built off of lower market cap companies. The MidLarge Cap Index, or MLCX, in Portuguese, focuses on the higher cap companies. On both cases, stocks are selected for these portfolios according to their liquidity, and their significance inside the index is determined by their market value.
To be a part of the MLCX, companies have to meet a series of criteria: they need to represent 85% of the Brazilian Stock Exchange value market (combined), or else they will integrate the SMLL. Companies issuing Brazilian Depository Receipts (or BRDs, in Portuguese) or undergoing administration or bankruptcy processes will be excluded.
Other criteria are also mandatory, considering the previous twelve months before the addition of a stock to one of the indexes:
- Being included in a stock list that, as a group, represents 99% of the accumulated value of the individual idexes:
- Being part of at least 95% of the trading sessions of the period.
If any of the previous criteria isn’t met, the company will be excluded from calculations. If a company hasn’t been listed in the Stock exchange for at least a year, it will be eligible if it has been on the trading floor for over six months and, during this time, meets the 95% presence requirement.
Companies undergoing administration, bankruptcy procedures of facing special situations, or those that have had their trading suspended for a long period will also be removed from the index, or, if already included, will be deleted from the index.
All portfolios are valid for four months, considering always the periods between January through April, May through August and September through December, taking effect on the first Monday of the initial month. After their due period, they’ll undergo evaluation and reset, if necessary.
Some examples of the SMLL index: Minerva, Arezzo, Positivo and BR Brokers, among others.
Some examples of the MLCX: Ambev, Multiplus, Vale, Petrobras, Oi and JBS, among others.