In the bigger picture,  the expiration of some lower tax rates for dividends and capital gains likely drove some investors to harvest gains at year-end, and many companies to issued special dividends to shareholders. It seems investors turned around and put that capital to work, because the S&P 500 grew 5.1% during the month of January and the first quarter has demonstrated some healthy performance.

Our SmallCap Informer picks have also been performing well. Several of our picks are  showing positive returns. As of February 1, 2013, Titan Machinery is up 57.4% since September, CARBO Ceramics is up 42.9% since October, and Air Methods is showing a 25.9% return since November (including dividends).

Our biggest laggard, Mistras Group, is down 7.0% since October, but we’re happy to see that the stock is getting some attention from other sources that share our stock-picking approach. The price decline is a likely opportunity to buy at an even better valuation.

Yes, all of the above are short-term results, and we’ve seen plenty of volatility in the share prices of many stocks (the price of Vera Bradley, for one, tends to move up and down according to the whims of some market players, though the fundamental picture remains clear). The sector’s results underscore the fact that small-cap companies are an essential part of a well-rounded portfolio. Follow SmallCap Informer as we track companies that fit our criteria and explain why a mix of these companies can help balance your overall strategy.