The Investment Scientist

Small Cap Value Underperforming: A Historical Perspective

Posted on: December 11, 2007


By the end of 2006, Small Cap Value stocks had completed a historical 7 year run of outperformance relative to Large Cap Growth stocks. According to Prof Kenneth French’s data library, during this 7 years, Large Cap Growth returned a total of -10.35% while Small Cap Value returned a total of 266%!

2007 however saw a drastic reversal. In the first 10 months alone, Large Cap Growth has outperformed Small Cap Value by a whopping 18%! If you are a Small Cap Value investor and you are nervous, you are not alone. How much longer and how much more will Small Cap Value uncerperform? To get a handle of these issues, it is helpful to get a historical perspective.

Based on the data on Fama/French benchmark portfolios in Prof. French’s data library, and by comparing the yearly performances of the Small Cap Value portfolio and the Large Cap Growth portfolio since 1960, I obtained the following results:

1. 75% of the years, Small Cap Value outperformed; 25% of the years, Large Cap Growth outperformed.

2. $1000 invested in Small Cap Value on 1/1/1960 would grow to $1.7mm on 12/31/2006! In comparison, $1000 invested in Large Cap Growth on 1/1/1960 would grow to only $66k.

3. There are 8 occurrences of Large Cap Growth outperformance. 3 lasted for one year, 3 lasted for two years and 2 lasted for 3 years.

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5 Responses to "Small Cap Value Underperforming: A Historical Perspective"

What is the source of your data? I want verify your results for the 47 years since 1960.

Prof. Kenneth French’s data library.

Michael, would you mind updating fama french small cap value vs large cap growth historical performance summary at the end of 2009. Also, you wrote a piece awhile back summarizing the historical performance of SCV when coming out of recessions. Basically, if I remember correctly, you compared the performance of scv over 1/3/5 years vs the S&P 500 and perhaps some other asset classes. Since this recession is likely over (my opinion), I think it would be interesting to track this trend over the next few years and compare it to historical precedence. Thx. Steve


Interesting you asked. I am sitting down today to do just that.


Thanks. I ran the relevant asset classes using the Russell indices yesterday. If one uses Dec 1, 2007 as the beginning date of the recession and Friday’s market close (Sept 25), SCV, despite a bitter pullback, still outperforms the Russell 3000, 1000 growth and value as well as the Russell 2000 growth and blend. Very interesting. Though it has trailed most of 2009, it’s been making a startling comeback the past quarter. Thx. Steve

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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