Small Value Roars Back
Premiums shows up when you least expect them. You have to stay invested to see the benefits.
It’s only been a couple months since I was encouraging patience with small cap value based on past examples of quick turnarounds in relative performance. At the risk of sounding like a rooster taking credit for the dawn, I am comfortable saying that July’s US small cap value resurgence was a welcome development.
This story has been deservedly covered in the media, and here are my favorite stats for performance of small value versus large growth based on returns for the Russell 2000 Value Index and Russell 1000 Growth Index.
- Small value outperformed large growth by more than 2.5 percentage points three times over a five-trading-day span (July 11, 16, and 17). Return spreads that large are uncommon, occurring previously only 96 times out of 8,124 days going back to June 1993.
- July 11 was the fifth-largest spread ever at 6.13 percentage points, exceeding any day during the early 2000s’ small value turnaround. (The largest daily spread was 8.71 percentage points on November 9, 2020, the day Pfizer announced the efficacy rate from its COVID vaccine tests.)
- The five-day cumulative return spread on July 17 was 14.83 percentage points, the largest ever for these indices. That spread was more than 2.5 times the 99th percentile five-day spread of 5.65%.
- While small value still trails large growth over the past three years, the annualized deficit dropped from 10.73 percentage points as of July 10 to 5.76 percentage points through July 17. Nearly half the gap closed in the span of just five trading days.
Asset class returns are unpredictable and occasionally show up in bunches. Reliably capturing return premiums requires consistent exposure. Missing a few big days may cost investors literally years in expected returns.
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