20 yr review of Mel's Unloved Midcaps

[Robert T]

.
SPDR S&P Midcap 400 [MDY] now has a 20 year record of performance.

Annualized returns: 6/1/1995 to 7/15/2015 - just over 20 years

12.0% = SPDR S&P Midcap 400 [MDY]
.9.2% = Vanguard Total Stock Market [VTSMX]
10.3% = DFA US Large Value [DFLVX]
12.2% = DFA US Small Value [DFSVX]

M* tells me that on an after-tax basis MDY had the highest return. MDY and VTSMX lost about 0.6% to taxes, while DFSVX lost about 1.5% to taxes.

Robert
.

[JoMoney]

It's interesting how well the S&P Mid-Cap index did. There was a period in the late 90's-2000's where it made a difference, and the S&P managed to somehow hit the mark a bit better than others:

MStar Link

[Call_Me_Op]

Surprise! There are small and value premiums after all.

[JoMoney]

Surprise! There are small and value premiums after all.

There 'was' ...

[animule]

The reason that the Vanguard Mid Cap fund did better than most in the 1999 to early 2000's period was because it tracked the S&P Mid Cap 400 index which required companies to post consecutive periods of earnings before gaining inclusion into the index.

This is the same requirement that helped the S&P Smallcap 600 fund out perform the Russell 3000 about that same time period as the earnings requirement prevented the index from investing in tech companies that had huge valuations, but no profits. Many of these companies collapsed over time. Not investing in these companies in the first place saved investors big time.

Vanguard changed the tracking index in 2003. Details below.

http://www.etf.com/publications/journal ... /1644.html

Vanguard Announces Index Change For Seven Funds

By Journal of Indexes Staff
April 01, 2003

Vanguard is switching indexes for five of its style funds as well as its mid-cap and small-cap funds. The funds will now aim to track new indexes that have been launched by Morgan Stanley Capital International (MSCI). Each fund will continue to track the same segment of the market, consistent with fund objectives, but will do so in a way that Vanguard asserts will have less turnover and more style integrity.

Making the change to the MSCI indexes are the mid-cap, small-cap, value, growth, small-cap value, small-cap growth and variable insurance (mid-cap portfolio) funds. Assets in the seven funds making the transition total nearly $20 billion. Vanguard currently has a total of $200 billion in indexed assets (of some $600 billion that it manages overall) in 40 index funds tracking 22 benchmarks from seven index providers. Vanguard said that the transition to the new MSCI benchmarks was expected to occur between April 20 and September 30, 2003.

Gus Sauter, Vanguard's Chief Investment Officer, said that Vanguard has been "very pleased" with how the new indexes were performing thus far, and noted that "It was not at all a difficult decision to formally recommend to the boards that the funds transition to the new indexes."

[nedsaid]

The reason that the Vanguard Mid Cap fund did better than most in the 1999 to early 2000's period was because it tracked the S&P Mid Cap 400 index which required companies to post consecutive periods of earnings before gaining inclusion into the index.

This is the same requirement that helped the S&P Smallcap 600 fund out perform the Russell 3000 about that same time period as the earnings requirement prevented the index from investing in tech companies that had huge valuations, but no profits. Many of these companies collapsed over time. Not investing in these companies in the first place saved investors big time.

Vanguard changed the tracking index in 2003. Details below.

http://www.etf.com/publications/journal ... /1644.html

Vanguard Announces Index Change For Seven Funds

By Journal of Indexes Staff
April 01, 2003

Vanguard is switching indexes for five of its style funds as well as its mid-cap and small-cap funds. The funds will now aim to track new indexes that have been launched by Morgan Stanley Capital International (MSCI). Each fund will continue to track the same segment of the market, consistent with fund objectives, but will do so in a way that Vanguard asserts will have less turnover and more style integrity.

Making the change to the MSCI indexes are the mid-cap, small-cap, value, growth, small-cap value, small-cap growth and variable insurance (mid-cap portfolio) funds. Assets in the seven funds making the transition total nearly $20 billion. Vanguard currently has a total of $200 billion in indexed assets (of some $600 billion that it manages overall) in 40 index funds tracking 22 benchmarks from seven index providers. Vanguard said that the transition to the new MSCI benchmarks was expected to occur between April 20 and September 30, 2003.

Gus Sauter, Vanguard's Chief Investment Officer, said that Vanguard has been "very pleased" with how the new indexes were performing thus far, and noted that "It was not at all a difficult decision to formally recommend to the boards that the funds transition to the new indexes."

It goes to show you that if you don't like how your index is performing, just pick another index!!

[Grt2bOutdoors]

What a difference an extra 1% to one's portfolio can have to the ending value. Let's all pile into Midcaps, thereby erasing the equity risk premium and finding ourselves back to square one. If you think the CAPE for the S&P 500 is larger than normal, do the calculations for the S&P 400.

[tludwig23]

Surprise! There are small and value premiums after all.

There 'was' ...

There were ...

[RNJ]

Surprise! There are small and value premiums after all.

There 'was' ...

There were ...

Grammatical issues aside, since inception MDY outperformed both VOE (Vanguard's Mid Value offering) as well as it's "sister" value offering, MDYV.

[FillorKill]

Grammatical issues aside, since inception MDY outperformed both VOE (Vanguard's Mid Value offering) as well as it's "sister" value offering, MDYV.

Comparing MDY to VG Mid Cap (VIMSX) from inception, 05/21/1998 finds that VIMSX has outperformed.

Comparing MDYV to VG Mid Cap Value (VMVIX) from inception, 08/24/2006 finds that VMVIX has outperformed.

The market cap size difference between the 400 and the VG Mid cap indexes make the comparison not overly useful - MDY is much, much smaller. And VG can't seem to stick to any one particular index either...

[Keiser2015]

Do you think there will be a 20 year period when large cap or small cap beat midcaps? Has it happened in the past? Will it happen in the future?

[RNJ]

Grammatical issues aside, since inception MDY outperformed both VOE (Vanguard's Mid Value offering) as well as it's "sister" value offering, MDYV.

Comparing MDY to VG Mid Cap (VIMSX) from inception, 05/21/1998 finds that VIMSX has outperformed.

Comparing MDYV to VG Mid Cap Value (VMVIX) from inception, 08/24/2006 finds that VMVIX has outperformed.

The market cap size difference between the 400 and the VG Mid cap indexes make the comparison not overly useful - MDY is much, much smaller. And VG can't seem to stick to any one particular index either...

Spent way too much time trying to copy and paste an image (M* screenshot). If you look at the growth of the three aforementioned ETFs on M*, beginning with VOE's date of inception (8/1/06, I believe), MDY outperformed. With respect to the issues mentioned about VG's index, the better comparison is the the sibling fund, MDYV. Final numbers to the present (assuming initial investment of $10k):

MDY: $22,641
MDYV: $20,137
VOE: $21,186

[randomguy]

Do you think there will be a 20 year period when large cap or small cap beat midcaps? Has it happened in the past? Will it happen in the future?

Yes:) Obviously we can't predicat the future but lets look at the past. From portfolio visualizer

1972-1981
Large 6.1%
Mid 10.4
Small 15.86%

1980-1999
Large 17.56
Mid 16.25
Small 14.12%

You can debate the definitions (what is a midcap or small cap) but there is a good chance over a short period like 20 years that any of these can outperform. Things like value and smallness have historically gotten most of the outperformance in a few 5-10 year periods. For example if you look at large value, it beats a total market over the last 40 years. But all of the outperformance was pretty much in the first 10.

[abuss368]

.
SPDR S&P Midcap 400 [MDY] now has a 20 year record of performance.

Annualized returns: 6/1/1995 to 7/15/2015 - just over 20 years

12.0% = SPDR S&P Midcap 400 [MDY]
.9.2% = Vanguard Total Stock Market [VTSMX]
10.3% = DFA US Large Value [DFLVX]
12.2% = DFA US Small Value [DFSVX]

M* tells me that on an after-tax basis MDY had the highest return. MDY and VTSMX lost about 0.6% to taxes, while DFSVX lost about 1.5% to taxes.

Robert
.

Hi Robert T.,

Thank you for the 20 year history. Mel certainly loves his Midcaps over the years!

Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?

Best.

[FillorKill]

Spent way too much time trying to copy and paste an image (M* screenshot). I don't know how to do that either but didn't bother trying - I know my technical abilities are limited

If you look at the growth of the three aforementioned ETFs on M*, beginning with VOE's date of inception (8/1/06, I believe), MDY outperformed. With respect to the issues mentioned about VG's index, the better comparison is the the sibling fund, MDYV. Final numbers to the present (assuming initial investment of $10k):

MDY: $22,641
MDYV: $20,137
VOE: $21,186

VOE is mid cap value - when compared to MDVY - based on the 400 value index, the VG product was superior as we've both now shown. If you want to compare MDY to an ETF rather than the fund (which has a much longer history) the appropriate comparison is to VO. Run a total return chart of VO to MDY from date of inception (01/26/2004) and VO is superior as the mutual fund share class was over the greater period.

Why are you mixing and matching blend (core) and value indexes when drawing comparisons? I must be missing something.

[Robert T]

.

Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?

Mel's earlier reasons:

• "My contention is that midcaps do, indeed, have some of the nice return characteristics of the small-caps and large-caps, but, IMO, they eliminate two of the potential problems in those groups -- "bubbles" in the large caps and IPO-mania, such as experienced in the dot.com craze, in the small caps."
  
  http://socialize.morningstar.com/NewSoc ... ID=2340997

Robert
.

[FillorKill]

With respect to the issues mentioned about VG's index, the better comparison is...

On a related note, based on the index du jour for the VG products, the current best comparisons for the 400 series would be the VG 'small' VB/VBR, etc. The size loading is much more similar.

[Robert T]

.

Do you think there will be a 20 year period when large cap or small cap beat midcaps? Has it happened in the past? Will it happen in the future?

Yes. Large caps beat mid-cap in 20 yr period from 1980-1999

Annualized return: 1980-1999

Ibbotson Large Growth = 18.5%
Ibbotson Mid Growth = 16.0%
--------------------------
Large Growth - Mid Growth = 2.5%

Ibbotson Large Value = 17.0%
Ibbotson Mid Value = 16.6%
--------------------------
Large Value - Mid Value = 0.4%

So perhaps the more recent period is somewhat driven be 'revision to the mean'.

Robert
.

[Kevin M]

These kinds of results are highly period dependent, and can change a lot by just dropping a year or shifting the start/end dates by one year. I've looked into this a lot for Vanguard small-cap and mid-cap funds. Mid-cap did better 2000-2014, but if you start in 2001, small-cap did a little better, but they performed almost identically (I would be happy using either one to tilt to small cap in a 401k). I drilled into this once, and found that all of mid-caps outperformance for 2000-2014 was due to a couple of months in 2000--not something we can count on happening again.

I think it's a common misconception that mid-caps are mid-way between large-cap and small-cap, when in reality, they are much closer to small-cap than to large-cap, both in median market capitalizations and performance--at least for the Vanguard funds.

Kevin

[abuss368]

.

Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?

Mel's earlier reasons:

• "My contention is that midcaps do, indeed, have some of the nice return characteristics of the small-caps and large-caps, but, IMO, they eliminate two of the potential problems in those groups -- "bubbles" in the large caps and IPO-mania, such as experienced in the dot.com craze, in the small caps."
  
  http://socialize.morningstar.com/NewSoc ... ID=2340997

Robert
.

Thank you Robert!

[Mel Lindauer]

.

Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?

Mel's earlier reasons:

• "My contention is that midcaps do, indeed, have some of the nice return characteristics of the small-caps and large-caps, but, IMO, they eliminate two of the potential problems in those groups -- "bubbles" in the large caps and IPO-mania, such as experienced in the dot.com craze, in the small caps."
  
  http://socialize.morningstar.com/NewSoc ... ID=2340997

Robert
.

Thank you Robert!

That's my reasoning, and it hasn't changed over the years since I first wrote about mid-caps in a discussion with Larry Swedroe on the old Morningstar Vanguard Diehards forum in 2000.

[heyyou]

I salute the person who has recognized what suits himself, regardless of the opinions of others.
Thank you Mel for just being who you are.

[dekecarver]

Thank you Mel. When I was looking at asset allocation I paid attention to your take on Midcaps way back. It made sense so I took a gamble; bought, held and added. Still chugging along for better or worse

[ignition]

What a difference an extra 1% to one's portfolio can have to the ending value. Let's all pile into Midcaps, thereby erasing the equity risk premium and finding ourselves back to square one. If you think the CAPE for the S&P 500 is larger than normal, do the calculations for the S&P 400.

I always find it hard to value small caps/mid caps. Is it normal that they have much higher valuations than large caps?

For example the Russell 2000 has a pe of 61 and a cape of 136 according to this link: http://siblisresearch.com/data/russell-2000-pe-yield/

[alex123711]

This is the first time I've seen the view that mid aps outperform, is there a link to the original thread? Curious about this, but isn't it similar to stock picking instead of just holding whole market? Also if mid caps perform well don't they just become large caps and drop out of the index? And also since they have done so well in the past 20 years would that mean the future returns are expected to be lower/ revert to the mean and small/ large cap may outperform next?

[megabad]

This is the first time I've seen the view that mid aps outperform, is there a link to the original thread? Curious about this, but isn't it similar to stock picking instead of just holding whole market? Also if mid caps perform well don't they just become large caps and drop out of the index? And also since they have done so well in the past 20 years would that mean the future returns are expected to be lower/ revert to the mean and small/ large cap may outperform next?

A blast from the past. Some of you may remember that Morningstar was the home of the Bogleheads prior to this site. Try this link:

http://socialize.morningstar.com/NewSoc ... aspx#27802

[jbranx]

Recalling history off the top of my head, but pretty sure there was no "midcap" name in any fund with the exception of one at American National Bank when S&P launched the Midcap 400 in the middle of '91. The median market cap was about $700 million. The launch of the 400 was such a big deal that the WSJ ran the entire list of the companies in the index along with a big story. Only a few years later, most fund companies had an active midcap fund, which may explain some of the additional alpha of the fund and ETF.

I don't recall how many "completion"indexes or funds there were prior to '91, but those would be the ones to check for actual performance. Running a database search without the "inclusion" factor screens an index provider would impose--size, sectors, liquidity etc.--would seem to be mostly hypothetical. That's kind of like claiming the S&P 500 has "returned" 10-11% since 1926. It wasn't 500 stocks until 1957, no one owned it in '26 or '57, so not far from a fantasy claim. Further, the index paid no horrendous spread, commission, and high taxes to whittle down that fantastic return.

Another explanation could be--haven't researched this--but the largest source of new entrants for the S&P 500 come from the 400; the announcement index effect, therefore, benefits the 400 and not the 500.

There was skepticism that a midcap ETF would be very appealing, so State Street, which had sponsored SPY, bowed out and the launch by the American Stock Exchange was done at the Bank of NY. MDY is now back in the fold at SPDR's State Street.

Mel's "unloved midcaps" became a pretty well known phrase, partly because there were prominent gurus who insisted that midcaps made no sense in portfolios; better to just do large and small, they claimed. Same crowd that said best to ignore the S&P Smallcap 600 since the 2000 stocks in the Russell index clearly provided better diversification. I'll have to do a little research and see if there are recants. I think Dreyfus was the only fund company to license the Midcap 400 as a mutual fund; dont' know if it is still in existence. Along with Mel, I've been a midcap fan, though my recollection of the history may be well off. Someone will be along to correct me.

[Mel Lindauer]

This is the first time I've seen the view that mid aps outperform, is there a link to the original thread? Curious about this, but isn't it similar to stock picking instead of just holding whole market? Also if mid caps perform well don't they just become large caps and drop out of the index? And also since they have done so well in the past 20 years would that mean the future returns are expected to be lower/ revert to the mean and small/ large cap may outperform next?

A blast from the past. Some of you may remember that Morningstar was the home of the Bogleheads prior to this site. Try this link:

http://socialize.morningstar.com/NewSoc ... aspx#27802

Ah, yes, a real blast from the past (20 years ago).

The early research I did on mid-caps long before that discussion with Larry convinced me to go all in with mid-caps for my equity holdings.

Over the years, what became known as "Mel's Unloved Mid-Caps" was very good to me and I was able to retire early.

I've since simplified my.portfolio into a single Life Strategy fund so that my wife doesn't have to change a thing when I'm no longer around.

FWIW, I'm still a believer. I have my grandchildren's 529 Plans in 100% mid-cap index.

[rascott]

This is the first time I've seen the view that mid aps outperform, is there a link to the original thread? Curious about this, but isn't it similar to stock picking instead of just holding whole market? Also if mid caps perform well don't they just become large caps and drop out of the index? And also since they have done so well in the past 20 years would that mean the future returns are expected to be lower/ revert to the mean and small/ large cap may outperform next?

A blast from the past. Some of you may remember that Morningstar was the home of the Bogleheads prior to this site. Try this link:

http://socialize.morningstar.com/NewSoc ... aspx#27802

Ah, yes, a real blast from the past (20 years ago).

The early research I did on mid-caps long before that discussion with Larry convinced me to go all in with mid-caps for my equity holdings.

Over the years, what became known as "Mel's Unloved Mid-Caps" was very good to me and I was able to retire early.

I've since simplified my.portfolio into a single Life Strategy fund so that my wife doesn't have to change a thing when I'm no longer around.

FWIW, I'm still a believer. I have my grandchildren's 529 Plans in 100% mid-cap index.

I've been heavy into mid-caps since roughly 2004. Starting at a time when I was in the TSP, using the S fund (which is really a "M" fund )

And then in a variety of mid cap funds for at least 35% of the portfolio ever since. They've been a good place to be for a long while.

[jdilla1107]

I was playing around with portfolio visualizer and I find this interesting:

From 1979-1999 small, mid, and large cap perform about the same.
From 2004-2019 small, mid, and large cap perform about the same.

From 1999-2004 midcap and small cap perform massively better than large cap.

The period of out performance obviously covers the dot-com crash.

So, the dot com crash really was mostly a crash of large cap stocks. I never realized this.

Note that small and mid caps didn't do any better/worse in the 2008 financial crisis.

[oldzey]

I've enjoyed reading through some of the 20 years of posts about Mel's Unloved Midcaps:

2000: http://socialize.morningstar.com/NewSoc ... aspx#27802
2007: http://socialize.morningstar.com/NewSoc ... ID=2340997
2008: viewtopic.php?t=11153
2014: viewtopic.php?t=137723
2015-2019: viewtopic.php?t=169637

My employer recently "discovered" Mel's Unloved Mid-Caps, having just added Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) to their list of 403b fund offerings.

[Mel Lindauer]

I've enjoyed reading through some of the 20 years of posts about Mel's Unloved Midcaps:

2000: http://socialize.morningstar.com/NewSoc ... aspx#27802
2007: http://socialize.morningstar.com/NewSoc ... ID=2340997
2008: viewtopic.php?t=11153
2014: viewtopic.php?t=137723
2015-2019: viewtopic.php?t=169637

My employer recently "discovered" Mel's Unloved Mid-Caps, having just added Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) to their list of 403b fund offerings.

That's nice that you're being offered the lower-cost Admiral class shares.

[cheezit]

From 2004-2019 small, mid, and large cap perform about the same.

Huh? The S&P 400 (mid-caps) beat the S&P 500 (large-caps) by roughly 0.75% CAGR over that period, and the S&P 600 (small caps) beat it by roughly 1%. What indices are you using to represent the various cap buckets?

[oldzey]

I've enjoyed reading through some of the 20 years of posts about Mel's Unloved Midcaps:

2000: http://socialize.morningstar.com/NewSoc ... aspx#27802
2007: http://socialize.morningstar.com/NewSoc ... ID=2340997
2008: viewtopic.php?t=11153
2014: viewtopic.php?t=137723
2015-2019: viewtopic.php?t=169637

My employer recently "discovered" Mel's Unloved Mid-Caps, having just added Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) to their list of 403b fund offerings.

That's nice that you're being offered the lower-cost Admiral class shares.

I agree, Mel!

My employer's provider (TIAA) doesn't offer a Mid-Cap Blend Fund, so that's likely why it recently became the sole non-proprietary fund offered:
https://www.tiaa.org/public/investment- ... ker=300472

[abuss368]

I've since simplified my.portfolio into a single Life Strategy fund so that my wife doesn't have to change a thing when I'm no longer around.

Thanks Mel. We are probably heading in that direction as well. Simplicity.

[jdilla1107]

From 2004-2019 small, mid, and large cap perform about the same.

Huh? The S&P 400 (mid-caps) beat the S&P 500 (large-caps) by roughly 0.75% CAGR over that period, and the S&P 600 (small caps) beat it by roughly 1%. What indices are you using to represent the various cap buckets?

I was actually looking at 2005/2006-2019 and just wrote it wrong. But, you can see the outperformance diminishing starting in 2004. 1999-2006 was a special time for midcaps and smallcaps.

The point is that midcaps aren't slowly out performing over time. There is one single time frame where all the outperformance happened in the last 40 years. In addition that period is an incredibly unique period where tech crashed. (Large cap holds 2x the amount of tech as small cap) So, a good amount of the outperformance could be explained by being underweight tech during the dot com crash.

This all makes it a lot less likely to repeat, imo.

[HEDGEFUNDIE]

From 2004-2019 small, mid, and large cap perform about the same.

Huh? The S&P 400 (mid-caps) beat the S&P 500 (large-caps) by roughly 0.75% CAGR over that period, and the S&P 600 (small caps) beat it by roughly 1%. What indices are you using to represent the various cap buckets?

I was actually looking at 2005/2006-2019 and just wrote it wrong. But, you can see the outperformance diminishing starting in 2004. 1999-2006 was a special time for midcaps and smallcaps.

The point is that midcaps aren't slowly out performing over time. There is one single time frame where all the outperformance happened in the last 40 years. In addition that period is an incredibly unique period where tech crashed. (Large cap holds 2x the amount of tech as small cap) So, a good amount of the outperformance could be explained by being underweight tech during the dot com crash.

This all makes it a lot less likely to repeat, imo.

+1

Mid caps and small caps have not outperformed large caps since 2006.

[randomguy]

I was playing around with portfolio visualizer and I find this interesting:

From 1979-1999 small, mid, and large cap perform about the same.
From 2004-2019 small, mid, and large cap perform about the same.

From 1999-2004 midcap and small cap perform massively better than large cap.

The period of out performance obviously covers the dot-com crash.

So, the dot com crash really was mostly a crash of large cap stocks. I never realized this.

Note that small and mid caps didn't do any better/worse in the 2008 financial crisis.

Your could also write this as
1979-1995 Small /mid outperforms Large
1996-2003 small and large perform the same and both trail Mid
2004-2019 Small/Mid outperform large

1995-1999 was a period of huge large cap outperformance and 2000-3 were a period of underperformance. Small caps definitely lost money in 2000-2 but it was a much smaller loss than the large caps.

[randomguy]

From 2004-2019 small, mid, and large cap perform about the same.

Huh? The S&P 400 (mid-caps) beat the S&P 500 (large-caps) by roughly 0.75% CAGR over that period, and the S&P 600 (small caps) beat it by roughly 1%. What indices are you using to represent the various cap buckets?

I was actually looking at 2005/2006-2019 and just wrote it wrong. But, you can see the outperformance diminishing starting in 2004. 1999-2006 was a special time for midcaps and smallcaps.

The point is that midcaps aren't slowly out performing over time. There is one single time frame where all the outperformance happened in the last 40 years. In addition that period is an incredibly unique period where tech crashed. (Large cap holds 2x the amount of tech as small cap) So, a good amount of the outperformance could be explained by being underweight tech during the dot com crash.

This all makes it a lot less likely to repeat, imo.

+1

Mid caps and small caps have not outperformed large caps since 2006.

Sure but isn't that expected? Factor investing gains tend to be all concentrated in brief periods of time and the rest of the time, they are treading water/falling behind the rest of the market.
For example
2000-2019
SV 9.46%
Large Caps 5.55%

Pretty much right in line with the historical average. But break it down farther
2000-3 . -5% to 13%
2004->2019 9.64% to 10.10

If you look at at 15 year time frame, you go factor investing doesn't work. If you look at a 20 year period, you go works exactly as expected. The take away is that it takes a long time for factor investing to show up (and it might not. Large value has been a gone for like 40 years now) and if you go down this path you should expect decade long periods of under/flat performance. The other takeaway is that after 5 years of underperformance, maybe it is time to buy in:)

[jdilla1107]

I was playing around with portfolio visualizer and I find this interesting:

From 1979-1999 small, mid, and large cap perform about the same.
From 2004-2019 small, mid, and large cap perform about the same.

From 1999-2004 midcap and small cap perform massively better than large cap.

The period of out performance obviously covers the dot-com crash.

So, the dot com crash really was mostly a crash of large cap stocks. I never realized this.

Note that small and mid caps didn't do any better/worse in the 2008 financial crisis.

Your could also write this as
1979-1995 Small /mid outperforms Large
1996-2003 small and large perform the same and both trail Mid
2004-2019 Small/Mid outperform large

1995-1999 was a period of huge large cap outperformance and 2000-3 were a period of underperformance. Small caps definitely lost money in 2000-2 but it was a much smaller loss than the large caps.

This is a good point. You caused me to look through the year by year returns of all three since 1979. This is a good example of how selecting your start and end dates can create whatever narrative you want.

[dcabler]

I was playing around with portfolio visualizer and I find this interesting:

From 1979-1999 small, mid, and large cap perform about the same.
From 2004-2019 small, mid, and large cap perform about the same.

From 1999-2004 midcap and small cap perform massively better than large cap.

The period of out performance obviously covers the dot-com crash.

So, the dot com crash really was mostly a crash of large cap stocks. I never realized this.

Note that small and mid caps didn't do any better/worse in the 2008 financial crisis.

Your could also write this as
1979-1995 Small /mid outperforms Large
1996-2003 small and large perform the same and both trail Mid
2004-2019 Small/Mid outperform large

1995-1999 was a period of huge large cap outperformance and 2000-3 were a period of underperformance. Small caps definitely lost money in 2000-2 but it was a much smaller loss than the large caps.

This is a good point. You caused me to look through the year by year returns of all three since 1979. This is a good example of how selecting your start and end dates can create whatever narrative you want.

It's one of the reasons I like to use tell-tale charts instead. That way you can at least look at the waves of over and underperformance over a longer period of time by looking at the slopes of the trajectories and make a judgment about the randomness of it all. Simba spreadsheet supports this.

An example here: viewtopic.php?t=241716

[MotoTrojan]

I was playing around with portfolio visualizer and I find this interesting:

From 1979-1999 small, mid, and large cap perform about the same.
From 2004-2019 small, mid, and large cap perform about the same.

From 1999-2004 midcap and small cap perform massively better than large cap.

The period of out performance obviously covers the dot-com crash.

So, the dot com crash really was mostly a crash of large cap stocks. I never realized this.

Note that small and mid caps didn't do any better/worse in the 2008 financial crisis.

Your could also write this as
1979-1995 Small /mid outperforms Large
1996-2003 small and large perform the same and both trail Mid
2004-2019 Small/Mid outperform large

1995-1999 was a period of huge large cap outperformance and 2000-3 were a period of underperformance. Small caps definitely lost money in 2000-2 but it was a much smaller loss than the large caps.

This is a good point. You caused me to look through the year by year returns of all three since 1979. This is a good example of how selecting your start and end dates can create whatever narrative you want.

It's one of the reasons I like to use tell-tale charts instead. That way you can at least look at the waves of over and underperformance over a longer period of time by looking at the slopes of the trajectories and make a judgment about the randomness of it all. Simba spreadsheet supports this.

An example here: viewtopic.php?t=241716

+1; tell-tale charts are truly game-changing for these types of comparisons for me.

I am happy where I am with a core Total US Market holding for my domestic equity, and a nice tilt (27% of domestic) to small-value with holdings in the S&P600 (my preference) variant, as well as Vanguard's CRSP in my 401k as needed to maintain balance.

[dcabler]

I was playing around with portfolio visualizer and I find this interesting:

From 1979-1999 small, mid, and large cap perform about the same.
From 2004-2019 small, mid, and large cap perform about the same.

From 1999-2004 midcap and small cap perform massively better than large cap.

The period of out performance obviously covers the dot-com crash.

So, the dot com crash really was mostly a crash of large cap stocks. I never realized this.

Note that small and mid caps didn't do any better/worse in the 2008 financial crisis.

Your could also write this as
1979-1995 Small /mid outperforms Large
1996-2003 small and large perform the same and both trail Mid
2004-2019 Small/Mid outperform large

1995-1999 was a period of huge large cap outperformance and 2000-3 were a period of underperformance. Small caps definitely lost money in 2000-2 but it was a much smaller loss than the large caps.

This is a good point. You caused me to look through the year by year returns of all three since 1979. This is a good example of how selecting your start and end dates can create whatever narrative you want.

It's one of the reasons I like to use tell-tale charts instead. That way you can at least look at the waves of over and underperformance over a longer period of time by looking at the slopes of the trajectories and make a judgment about the randomness of it all. Simba spreadsheet supports this.

An example here: viewtopic.php?t=241716

+1; tell-tale charts are truly game-changing for these types of comparisons for me.

I am happy where I am with a core Total US Market holding for my domestic equity, and a nice tilt (27% of domestic) to small-value with holdings in the S&P600 (my preference) variant, as well as Vanguard's CRSP in my 401k as needed to maintain balance.

Yep those charts are a big help - By eyeballing the slopes I can get a rough idea of the historical lengths of time of both over and under performance as well as the magnitudes and look at my entire portfolio in context, not just one asset. No guarantees for the future, of course, but I'd rather have that than nothing.

On the funds, similar here - I prefer to use the small/mid cap S&P based funds (MCB, MCV and SCV) across my taxable and rollover IRAs at Fidelity and I can pretty much rebalance by buying/selling only within my IRA. Together they're about 97% of my total holdings. At my 401K, I have a fully mirrored AA, but only with Vanguard's choices there - eventually that will be rolled over to Fidelity when I leave my current employer. Same with my HSA, though I know I could do it now. Just not worth the effort at this time. Only thing left after that is a deferred comp from a previous employer with even fewer choices, but only a couple of years left of payouts anyway before it's depleted.

[protagonist]

What is the point?
20 years is nothing in the course of history.

In October 2011, a "30 year review" (10/1981-9/2011) would have revealed that:
-long-term Treasuries returned 11.5%/yr
-Long-term corporate bonds returned 11.1%/yr
-The S+P 500 returned 10.8%/yr.
(figures from Larry Swedroe's CBS news report of 11/8/2011 https://www.cbsnews.com/news/bonds-beat ... s-so-what/)

So if this was November 2011, would we conclude that stocks underperform LT corporates which underperform LT Treasuries? That was a whole 30 years...1 1/2 times as long as Mel's Midcaps overperformed. Maybe we should all be 100% in Treasuries. Really safe and 30 years outperforming stocks!!

Perusing Boglehead posts makes it hard to imagine that this is a group that believes that "past performance does not predict future results".

[RovenSkyfall]

Anyone so in love they are going 100% UMDD?

[cos]

Anyone so in love they are going 100% UMDD?

I can't stop considering it! Although, I'd probably pair it with TMF.

[Turnol]

How much of an issue is the turnover in Midcap funds? The Vanguard Midcap ETF, VO, had a 24% turnover rate last fiscal year. Turnover for VTI was 8% and VB had 22%. However, VO's larger cap size than VB should mean that each percent point of turnover should cost less than in VB. But then, the same point applies to VTI vs VO, in VTI's favor.

[Mel Lindauer]

.
SPDR S&P Midcap 400 [MDY] now has a 20 year record of performance.

Annualized returns: 6/1/1995 to 7/15/2015 - just over 20 years

12.0% = SPDR S&P Midcap 400 [MDY]
.9.2% = Vanguard Total Stock Market [VTSMX]
10.3% = DFA US Large Value [DFLVX]
12.2% = DFA US Small Value [DFSVX]

M* tells me that on an after-tax basis MDY had the highest return. MDY and VTSMX lost about 0.6% to taxes, while DFSVX lost about 1.5% to taxes.

Robert
.

Thanks for the updated figures, Robert.

In addition to the DFA loss to taxes, there's also the annual advisor fee (usually around 1% AUM) that has to be subtracted.

And, as was the case 20 years ago when Larry Swedroe and I first had the discussion on M* that started "Mel's Unloved Mid-Caps", the slice-and-dicers (normally 50% large and 50& small) underperformed the Mid-Caps, even before the taxes and AUM fees were considered,

[anon_investor]

What is everyone's current favorite ETF or Vanguard mutual fund for midcap exposure?

I was using https://www.etfrc.com/funds/overlap.php to compare midcap ETFs, and it appears that VO (CRSP midcap index) and IVOO (S&P400 index) have only a 2% overlap. How is that possible? Both are supposed to be midcap index funds.

[Triple digit golfer]

What is everyone's current favorite ETF or Vanguard mutual fund for midcap exposure?

I was using https://www.etfrc.com/funds/overlap.php to compare midcap ETFs, and it appears that VO (CRSP midcap index) and IVOO (S&P400 index) have only a 2% overlap. How is that possible? Both are supposed to be midcap index funds.

"Midcap" is arbitrary. CRSP midcap is between 70-85% of market cap. Isn't S&P 500 about the largest 80-85%, generally? So roughly speaking, S&P definition of midcap is smaller than CRSP's. Is my thinking logical?