The Size Factor: A Case Against Small Caps

Although investors expect to be compensated for the higher inherent risk associated with small cap stocks, historical returns haven’t supported this thesis, according to an article in CFA Institute that analyzes whether different size metrics might have generated better performance. “Market capitalization is the prevailing metric for weighting stocks in equity indices. But it’s not the only way to measure the size of companies,” the article argues, outlining four alternative metrics that CFA Institute applied… Read More

Looking for Value in Un-Love Small Cap Stocks

Small-cap fund performance has taken a lot of heat lately, and the “small-cap premium” has been called into question. In a recent article for Nasdaq, John Reese, CEO of Validea, explains how the historic outperformance of small-caps compared to large-caps has reversed in recent years. This has raised a lot of questions in the investment community and has led to a study by a team at U.S. hedge fund AQR, the findings of which resurrected… Read More

The Small-Cap Premium Lives Despite Its Doubters

Larry Swedroe of Buckingham (and director of research with The BAM Alliance) writes on ETF.com that “investors should be suspicious of claims that they can benefit from well-known information,” making the point by dissecting a recent popular media article claiming that small-cap stocks have underperformed since 1979. Swedroe focuses on an article by Pension Partners LLC that uses the Russell 2000 Index (R2K) as a measure of small-cap performance to make its claims. Swedroe states… Read More