US small value stocks underperformed large growth stocks by about 4.5% per year over the past five years. Some investors have asked what went wrong with small value to garner such underperformance. Looking at returns over this period compared to the long term, we see the story is more about what went anomalously right for large growth.
Small value’s five-year number was squarely in the middle of its historical range of outcomes for rolling five-year returns, which span from –1.1% at the 10th percentile to 28.8% at the 90th percentile. Small growth and large value were both similarly far from their extremes over the past five years. Large growth, on the other hand, bumped up against its 90th percentile outcome of 19.6%.
It’s not clear that recent performance for value versus growth is helpful in predicting the future. A historically good run for growth doesn’t imply these stocks will come back to earth. But investors concerned about small value’s recent relative returns should be aware of which asset class outkicked its coverage over this stretch, while still enjoying the boost in return it provided to the overall market.
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Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
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