By Tom Burnett, CFA
In our continuing review of the performance of defined strategies and investment styles, we have looked at the 15-year comparative performance of large and small market cap (as a reminder, the market cap is defined as shares outstanding times the current price) investment styles. For this review, we compare the returns from the general market to the performance of two ETF’s mirroring large and small cap companies. For the general market, we use the IVV fund which is the iShares Core S/P 500 Index ETF. The Large Cap fund is the Vanguard Large-Cap ETF whose symbol is VV. The Small Cap ETF is the Vanguard ETF whose symbol is VB.
We looked at the one-year, three-year, five-year, ten-year, and 15-year periods, all ending on January 10, 2020 prices. While the 15-year performance records are similar—9.42% annually for the VV Large Cap ETF and 9.37% for the Small Cap VB ETF, the other time periods clearly favor the Large Cap segment. For example, the one-year period shows Large Cap with a performance of 28.2% compared to just 19.3% for the Small Cap. Similarly, the three-year comparison gives an edge to the Large Cap version by a score of 15.2% over 9.8%. The five-year comparison narrows to 12.0% for Large Cap and 9.1% for Small Cap, but comparisons make it clear that over the recent past market periods, Large Cap stocks have outperformed their Small Cap rivals. In bad markets, however, both groups suffer. In 2008, the Large Cap ETF was down 37.1% while the Small Cap ETF dropped 36.0%. In deep bear markets, no group is immune to a sharp selloff.
It is interesting to note that investors still prefer the Small Cap group to its Large Cap rival as the VB assets currently exceed $27 billion compared to only $16 billion for the VV Large Cap ETF.
Tom Burnett, CFA is Director of Research