Small Things
Good things come in small packages, which is true for small company stocks. Since 1972 Dimensional Fund's small-cap index has more than doubled the return of its large-cap index, generating an annualized return of 12.7%, compared to 10.9% for large caps. The index returns date to 1927, and the best one-year return was 259% during the Great Depression. During the first phase of COVID, the small-cap index produced a 107% return from April 2020 to March 2021.[1] Though returns for small stocks have been better than larger ones, so has the risk level.
However, large-company stocks have outperformed small caps over the past 1-, 3-, 5-, and 10-year periods.
Will large companies continue to best small ones? Will the trend continue? Time will tell, but I believe small-cap stocks will again post better returns than large-caps as they have done for the past 95 years.
April 19, 2022
Note: past performance is not a guarantee of future performance.
[1] DFA Returns Web – 1927 to 2022