Over the past five years, the Russell index of small-cap value stocks has returned about 15 percent per year. Small-cap value has benefited from some “old economy” attributes such as sensitivity to low interest rates, high dividends, and more focus on the U.S., which has meant less currency exposure. Small-value includes some utilities, real estate investment trusts, and small energy companies, which have helped returns recently.
Meanwhile the Russell index of small-cap growth stocks has had a negative 2 percent annualized return for the last five years. The Russell large-cap index, which gained 24 percent a year in the late 1990s, has lost more than 1 percent a year in those last five years.
Thus, growth stocks are relatively cheap now, and that’s especially true in small-cap growth. Small-cap value managers report that there is less ability to place dollars, if they want to stay true to their discipline, while managers in the small-cap growth area say that they have more opportunities. Investors may want to tilt towards growth stocks and funds now, especially with money going into small companies.
