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MicroCaps + Informational Inefficiency = Active Opportunities – The Journal of Indexes

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The views expressed in this article are those of the authors as of the dates of the article. The opinions expressed are subject to change, are not guaranteed and are not intended as a forecast or as a recommendation to buy or sell any security.

Past performance does not guarantee future results. The data provided in this reprint is historical sector or index specific performance and is not indicative or predictive of any future returns. You may not invest directly in an index or sector. The historical returns provided are not representative of any Perritt Fund. Standardized performance for our funds can be obtained by clicking here.

Mutual fund investing involves risk. Principal loss is possible. The Funds invest in smaller companies, which involve additional risks such as limited liquidity and greater volatility. The Funds invest in micro cap companies which tend to perform poorly during times of economic stress. The Ultra MicroCap Fund may invest in early stage companies which tend to be more volatile and somewhat more speculative than investments in more established companies.

Standard Deviation is a statistical measure of the historical volatility of a mutual fund or portfolio, usually computed using 36 monthly returns. Cash flow is a revenue or expense stream that changes a cash account over a given period. Price to Earnings ratio is calculated by dividing current price of the stock by the company’s trailing 12 months’ earnings per share. Price to Book Value Ratio is calculated by dividing the current price of the stock by the company’s book value per share. Price to Cash Flow is calculated by dividing the current price of the stock by the company’s cash flow per share. Price to Sales ratio is a tool for calculating a stock’s valuation relative to other companies, calculated by dividing a stock’s current price by its revenue per share. I/B/E/S is a system that gathers and compiles the different estimates made by stock analysts on the future earnings for the majority of U.S. publicly traded companies. Beta measures the sensitivity of rates of return on a fund to general market movements. A beta above 1 is generally more volatile than the overall market, while a beta below 1 is generally less volatile. Earnings Per Share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. The Sharpe ratio is calculated by subtracting the risk-free rate – such as that of the 10-year U.S. Treasury bond – from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Russell 2000 Index consists of the smallest 2000 companies in a group of 3000 companies in the Russell 3000 as ranked by market cap. The Russell Microcap Index consists of the smallest 1000 companies in the Russell 2000 Index, in addition to the next smallest 1,000 stocks in the Russell indexing universe, as ranked by market cap. The Russell 1000 index consists of the largest 1000 companies in a group of 3,000 companies in the Russell 3000 as ranked by market cap. The Russell Midcap index consists of the smallest 800 companies the Russell 1000 index. One cannot directly invest in an index.

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