IWB - The Myth Of Small-Cap Outperformance

2024-04-22 23:46:50 ET

Summary

• Small-cap stocks may not reliably generate superior returns compared to large-cap stocks, and the size factor may even be detrimental to portfolios.
• Over a 23-year period, small-cap stocks only outperformed large-cap stocks by a negligible margin.
• The performance of small-cap stocks significantly deteriorated over shorter time frames of 10 and 5 years.
• At a more fundamental level, there are also structural factors that we think may disproportionately undermine small-caps as the modern capitalist system and economy continue to evolve.

The claim that small-cap stocks outperform large-cap stocks has too often been accepted as a factual statement by the investment community. This well-established characteristic of stock returns has even earned itself an enduring place in academic literature, also widely referred to as the "size" factor. The most cited academic literature on the size factor is a 1992 paper by Kenneth French and Eugene Fama . The authors posited that an overwhelming 90% of a stock’s returns can be attributed to the size of a company, exposure to the overall market, and value....

For further details see: