Doug Roberts is the managing principal for the Channel Capital Research Institute and author of the new book “Follow the Fed to Investment Success.” Prior to Channel Capital, Roberts served as a vice president and portfolio manager at Bernstein Investment Management and Research. Previously, Roberts was also managing director of the Roberts Mitani Group, a founding member of the board of directors of Benson Eyecare Corp. and served as COO of the Flori Roberts/Dermablend Group.

Roberts spoke with SmallCapInvestor.com’s Jennifer Schonberger on Monday about his investing strategy, the Fed’s current policy and how it relates overall to investing in small caps, and his favorite small-cap picks.

Essentially, “Follow the Fed” is based on the thesis that money and credit policy is the driving factor in the performances of stock prices and earnings. [Those], who do not have capital, cannot grow. The Federal Reserve is the largest determining factor behind this equation. When monetary policy is loose, it benefits small caps because it’s very difficult for them to borrow and gain access to capital, therefore the small-cap “out-performance premium” comes during those periods of time — give or take.

Right now we’re starting to move toward a small-cap environment, which depends on two things: that the Fed continues to maintain interest rates at a low level and whether inflation continues at the current pace. If it continues to do that, then by definition of our formula, the environment for monetary and credit policy is quite loose and once the fear gets sucked out of the market that [will] lead to a small cap rebound].

Currently, there’s no clear indication that the Fed is looking toward raising interest rates anytime soon. By definition then, according to our formula, we’re . . .

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