Thursday, January 06, 2005

Large Growth vs. Small Value

From year 2000 to 2004 (for 5 years), the small cap stocks have outperformed large cap stocks by as much as 9.35% as described here. Also, for the same time period the value stocks are beating down the growth stocks by 9.5% annually as mentioned here.

Now, let's consider the Vanguard Large-Cap Growth index fund returns to the vanguard Small-Cap Value index fund from year 2000 to 2004. For large cap growth, the return is -6.94% annualized and for the small cap value, the return is +15.05% annualized. This is the difference of about 22%. This is startling.

We will have to see how the story unfolds from 2005 to 2010. My guess is that this trend will not continue for long. I read many experts saying that the small cap value stocks are too hot, and they are overvalued. More and more small cap value stock funds are closing business for new investors.

Janus, a predominantely growth complex, just announced last week that they will start 2 new growth funds. These tells me that growth is coming back to life. The dollar is falling against foreign currencies, so big growth companies will have better returns going forward because of their overseas operations.

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