Equity Performance: Small Caps Easily Beat Large Caps

In my December 2009 article A Lost Decade for U.S. Stocks, I mentioned that the S&P 500 lost 23% from Dec 31, 1999 through Dec. 14, 2009.

A recent article in the Journal titled “Small Caps Loom Large” notes that the small cap stocks in the U.S. have rallied strongly since the decade that began Jan 1, 2000 when large caps have lost ground.

Some key points from the article:

  • The S&P 600 Index, a small-stock index, gained nearly 100% during the period, producing an annualized return of 7.1%. In the same period, S&P 500 has lost almost 2% per year for a total loss of about 18%
  • The Russell 2000, another small cap index also shows a similar pattern
  • The S&P 600 is trading at 2010 P/E of less than 22 compared to S&P 500’s P/E of 15
  • Small caps benefit more quickly when the economy recovers

Chart – Small Caps vs. Large Caps :

Click to Enlarge


U.S. Small Cap ETFs:
iShares S&P SmallCap 600 Index Fund (IJR)
iShares Russell 2000 Index Fund (IWM)
iShares Morningstar Small Core Index Fund (JKJ)
SPDR DJ Wilshire Small Cap ETF (DSC)
Vanguard Small-Cap ETF (VB)
Schwab U.S. Small-Cap ETF (SCHA)

International Small-Cap ETFs:
iShares MSCI EAFE Small-Cap Index Fund (SCZ)
International Small-Cap Fund (GWX)
FTSE Developed Ex-US Small Cap ETF (IFSM)
Vanguard FTSE All-World ex-U.S. Small Cap ETF (VSS)
SPDR S&P Emerging Markets Small Cap (EWX)

Source: Seeking Alpha, ETF Trends

As individual small cap stocks can be very volatile and may have low daily trading volumes, it is easier and wise to invest in them with ETFs.

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