It's been a fantastic time for stocks, but it's been even better for shares of small companies like Zale Corp. The small Texas company's shares rocketed more than 280 percent last year, propelled by investors who expect lovebirds to increasingly shell out big bucks for gold rings and diamond- encrusted pendants at Zale's jewelry stores and shopping center kiosks around the country. Investors have piled into Zale despite the company's shaky earnings history - it posted four straight years of losses before returning to profitability in 2013. It's a risk optimistic investors have been willing to take, betting that small-cap companies will continue to lead the market higher. "They've done extremely well," said Ed Zschau , 49, who runs an executive search firm in the San Francisco Bay Area and invests in mutual funds focused on small caps as well as young tech startups. "There's a lot of these companies that have, I think, still a lot of room for growth." Small caps, defined generally as companies valued at less than $2 billion , tend to lead the way during stock market rallies. Their shares often outshine those of larger, more mature businesses with stronger earnings track records. The bull market has been no exception. While the benchmark Standard & Poor's 500 index shot up 30 percent last year, the S&P SmallCap 600 index vaulted about 40 percent. It's a continuation of a trend since the market's recent nadir following the 2008 financial crisis. The S&P 500 is up more than 140 percent in the bull market that started in 2009, while the small- cap index is up 220 percent. "The small-cap market has been on a complete tear," said Chuck Myers , a portfolio manager at Fidelity Investments in Boston . Investors shoveled about $15 billion into small-cap mutual funds through November last year, according to data provided by Morningstar Inc. And anybody who sank money into those funds has been especially rewarded, reaping more than a 30 percent return last year, the data show. Some of the largest such funds include the Vanguard Small-Cap Index Fund , the T. Rowe Price New Horizons Fund and the Fidelity Small Cap Discovery Fund . Those types of returns are what investors have been chasing, thanks largely to the easy-money policies of the Federal Reserve. The Fed has been pumping $85 billion a month into the economy by buying long-term Treasury and mortgage-backed securities. The goal has been to push down interest rates as a way to stimulate growth. But the Fed's program, known as quantitative easing, has nudged investors out of traditionally safer investments such as top-rated corporate or government bonds and savings accounts. To get any meaningful return, investors have plowed into riskier assets such as stocks. And among equities, small caps are a bigger gamble. "Generally this is a risky asset, and, like a lot of risky assets, the riskier ones tend to do better when people are in a very, very aggressive mode," said Russ Koesterich , global chief investment strategist at the financial giant BlackRock Inc.
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