By Tom Burnett CFA
The first half of the stock market’s 2020 year is now complete and we will continue our ongoing review of the performance record of the primary equity market investment strategies. Morningstar is the source of the annual rate of return performance data and we use ETF vehicles as a proxy for the general market and for each strategy. The prices are based on the market close on June 30, 2020. The overall market is best represented by the SPY fund which is tied to the S/P 500 Index. Vanguard offers several strategic ETF funds with ten or 15 year performance track records and we will look closely at their records for our analysis. We summarize our findings as follows:
Large Cap v. Small Cap—
In this comparison, we will look at two separate ETF sets. The first set is the Vanguard large cap fund, symbol VV. We will compare its performance with that of the Vanguard small cap fund, symbol VB. Both funds offer a 15-year performance record. The results clearly favor the VV fund. For example, in the first half of 2020, the VV return was -1.6%, compared to -11.8% for the small cap VB fund. Looking at the performance records for the one-year, 3-year, 5-year, 10-year and 15-year periods, we see that the VV fund outperforms the VB fund during every time period. Looking at the ten-year record, for example, we see the VV fund achieving an annual rate of return of 14.4%, well above the 11.6% offered by the VB fund.
Our review also looked at the SPY fund’s record against the record of the SLY fund which tracks the performance of the S/P Small Cap 600. The SLY only goes back ten years, but its performance is well behind that of the SPY in all relevant time periods. This year, the SPY is down 2.5%, while the SLY is down 18.9%. Looking at the VV-VB and the SPY-SLY comparisons, the conclusion is obvious—the large cap strategy has clearly outperformed its small cap rival over the last 10-15 year periods.
Growth v. Value
For this comparison, we will look at the records of two Vanguard ETF vehicles—the growth fund, symbol VUG and the value fund, symbol VTV. Both of these funds are heavily owned with VUG assets at $51 billion and VTV assets at $47 billion. The performance records could not be more different. Thus far in 2020, the VUG fund is up 12.7% while the VTV fund is down 15.6%. In every time period, the VUG fund offers the superior rate of return. For example, the VUG ten-year return is 16,9% v. 11.2% for the VTV fund. Over ten years, this 5.7% outperformance compounds to an end value some 70% higher for VUG over VTV.
We also looked at the comparison of growth and value within the small cap category. For this review, we examined the performance records of the Vanguard small cap growth fund, symbol VBK, and the Vanguard small cap value fund, symbol VBR. Again, the growth vehicle outperformed in each time period. In 2020, the VBK return is +1.2%, compared to -22.3% for VBR. The long-term record also favors the growth fund as we see from the 15-year record where the VBK return is 10.0%, well above the VBR return of 6.1%
At this point, our conclusions are clear—growth beats value and large cap beats small cap.
Tom Burnett CFA is Director of Research