psteinx wrote: ↑
Thu Aug 15, 2019 12:22 pm
Yes, SV had a very good relative run from 2000-2004 (when such data was, in fact, more readily available). But in 2000, indexing and passive represented a much smaller share of the market than it does today.
The thing is that, as I mentioned previously, these bouts of oupterformance tend to happen after a period of underperformance. That's why I give SCV advocates a hard time when they cite data beginning in 2000, which was literally a bottom for SCV performance. In the case of small cap value, it underperformed TSM by about 11% CAGR from April 1994 through December 1999:
https://www.portfoliovisualizer.com/bac ... 0&total3=0
That is about 3% CAGR worse than the current underperformance, but about the same time frame: https://www.portfoliovisualizer.com/bac ... 0&total3=0
So all of the SCV "premium" showed up between 2000 and 2014, with most of it occurring between 2000 and 2006. So if an investor began investing in SCV in 1994-1996, or anytime after 2006, they have seen minimal or no benefit and, if they did see one (as was the case for those investing in SCV in the mid 1990s), had to wait many years to see it.
To me, many of the benefits highlighted using SCV past performance could also apply to US REITs during that time: https://www.portfoliovisualizer.com/bac ... total3=100
They also showed a similar pattern, with outperformance since 1994 mainly between the 2000-2006 time frame. In fact, I can't find a starting year after 2006 where either US REITs or US SCV outperformed the overall US stock market. And if you started in the 1994-1995 time frame, when these funds first were available, you had to sit through 5-10 years of underperformance until you were rewarded.
So I tend to be agnostic about the sustainable outperformance of any asset class. I am more optimistic about SCV returns in the future simply because it has performed worse in the last 5-10 years compared to the US stock market. But I can say the same thing about plenty of other asset classes as well which have underperformed even more (e.g., foreign developed and emerging markets stocks, gold, etc.). I actually can't think of any large asset class or sector that has outperformed the overall US market in the last decade, other that US tech and healthcare stocks.