Small Cap fund - Russell 2000 [underperforming - should I sell?]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
stocknoob4111
Posts: 1021
Joined: Sun Jan 07, 2018 12:52 pm

Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by stocknoob4111 » Sat Feb 15, 2020 12:43 am

I have about $20k worth of FSSNX which is a Fidelity fund tracking the Russell 2000. I acquired this position in mid Jan 2019 and have put in total contributions of about $16,000 or so and the gains are about $4k or so since then.

Question - The fund has trailed the S&P 500 significantly since Feb 2019.... 9.34% CAGR vs 21.67% for the S&P 500. Should I cut my losses and dump this fund and add it to my S&P 500 position or should I wait for it to recover?

This is only a small part (10%) of my total Small Cap position, the majority is in VTMSX which tracks the S&P 600.

User avatar
Jerry55
Posts: 727
Joined: Tue Jan 27, 2015 1:56 am
Location: That Toddlin' Town

Re: Small Cap fund - Russell 2000

Post by Jerry55 » Sat Feb 15, 2020 1:06 am

Every dog has it's day. In my TSP, I'm 80% C Fund (S & P 500), 10% International Fund (MSCI Index) and 10% S Fund (Small Cap)

Over the past 2 years, my C Fund gained ~ 28%, International Fund ~ 7% and Small Cap ~ 14%
I know things move and change, but, that's my allocation and will stick with it. I'm almost 65, but I believe it's best FOR ME.
I won't chase a moving object, but, if you believe in those allocations, it WILL come around in due time.
My Small cap fund has lagged, but that's ok. 9+ % is OK. Not breaking the sound barrier, but it's not a loss either.
I'll address these allocations when I turn 68-69 years old, if I'm still alive. Don't try and chase $$$ signs. What goes around...........
Last edited by Jerry55 on Sat Feb 15, 2020 1:08 am, edited 1 time in total.
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

fwellimort
Posts: 154
Joined: Tue Feb 12, 2019 9:41 am

Re: Small Cap fund - Russell 2000

Post by fwellimort » Sat Feb 15, 2020 1:08 am

No one knows the future.

Maybe S&P500 could lag next year. Maybe Mid Cap Value fund might be thing this year.

Trying to find "winning" funds ahead of time is generally a fool's errand. Have an allocation and stick to it.
Most people here recommend a total market fund because of the 'regret' looking back having trailed the market.

No one here can effectively see the future. The only common consensus here is 'the future of the stock market will be better in my lifetime'.
We here believe in the US (or the world if you have International) to produce outstanding results in the stock market.
There's no free lunch after all. Hope you the best with your decisions. Just stick to it I say. And ignore chasing after returns.

If chasing returns was a thing, I would not have over 40% on International currently. I would instead be in say all Australia or all South Africa... or better yet all on stocks like Amazon... or better yet, all on options on Tesla, etc.
Don't chase returns if that's not your job. Just have an allocation and stick to that allocation format.

Whether it under-performed in the past is not much relevant. Past != Future.
Ask yourself, do I believe that "such allocation portion" will do well in my lifetime? If such, stick with it.
Else, (shrugs).
Far more money has been lost chasing returns than anything else. Today's winners can be tomorrow's losers. Research has shown again and again chasing returns has under-performed the market long run.

TropikThunder
Posts: 2071
Joined: Sun Apr 03, 2016 5:41 pm

Re: Small Cap fund - Russell 2000

Post by TropikThunder » Sat Feb 15, 2020 2:29 am

stocknoob4111 wrote:
Sat Feb 15, 2020 12:43 am
I have about $20k worth of FSSNX which is a Fidelity fund tracking the Russell 2000. I acquired this position in mid Jan 2019 and have put in total contributions of about $16,000 or so and the gains are about $4k or so since then.

Question - The fund has trailed the S&P 500 significantly since Feb 2019.... 9.34% CAGR vs 21.67% for the S&P 500. Should I cut my losses and dump this fund and add it to my S&P 500 position or should I wait for it to recover?

This is only a small part (10%) of my total Small Cap position, the majority is in VTMSX which tracks the S&P 600.
VTMSX has done even worse over the same time period (6.97% CAGR). Are you going to dump that too? If no, then why keep one SC and not the other? And if yes, didn't your research into SC tilting show you that it can under-perform for years (if not decades)? Per the Callan Periodic Table, since 2000 SC has ranked 4th, 4th, 8th, 2nd, 4th, 5th, 4th, 8th, 5th, 5th, 1st, 6th, 4th, 1st, 4th, 6th, 1st, 4th, 7th, and 2nd out of 8 asset classes. What did you expect?
https://www.callan.com/wp-content/uploa ... -Table.pdf

rossington
Posts: 455
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Small Cap fund - Russell 2000

Post by rossington » Sat Feb 15, 2020 2:59 am

stocknoob4111 wrote:
Sat Feb 15, 2020 12:43 am
I have about $20k worth of FSSNX which is a Fidelity fund tracking the Russell 2000. I acquired this position in mid Jan 2019 and have put in total contributions of about $16,000 or so and the gains are about $4k or so since then.

Question - The fund has trailed the S&P 500 significantly since Feb 2019.... 9.34% CAGR vs 21.67% for the S&P 500. Should I cut my losses and dump this fund and add it to my S&P 500 position or should I wait for it to recover?

This is only a small part (10%) of my total Small Cap position, the majority is in VTMSX which tracks the S&P 600.
This doesn't make sense: you have 4k gains on 16k invested (20k total now). Unless I am misunderstanding you are up 25% What is wrong with that? Please explain.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

Godot
Posts: 302
Joined: Fri Jun 08, 2018 3:44 pm
Location: Little Beirut

Re: Small Cap fund - Russell 2000

Post by Godot » Sat Feb 15, 2020 4:10 am

stocknoob4111 wrote:
Sat Feb 15, 2020 12:43 am
I have about $20k worth of FSSNX which is a Fidelity fund tracking the Russell 2000. I acquired this position in mid Jan 2019 and have put in total contributions of about $16,000 or so and the gains are about $4k or so since then.

Question - The fund has trailed the S&P 500 significantly since Feb 2019.... 9.34% CAGR vs 21.67% for the S&P 500. Should I cut my losses and dump this fund and add it to my S&P 500 position or should I wait for it to recover?

This is only a small part (10%) of my total Small Cap position, the majority is in VTMSX which tracks the S&P 600.
Your numbers are wrong.
Estragon: I can't go on like this. | Vladimir: That's what you think. | ― Samuel Beckett, Waiting for Godot

theorist
Posts: 117
Joined: Sat Sep 28, 2019 11:39 am

Re: Small Cap fund - Russell 2000

Post by theorist » Sat Feb 15, 2020 7:05 am

OP,

You can see performance statistics for FSSNX here:

https://www.morningstar.com/funds/xnas/fssnx/quote

as well as at Fidelity, of course.

It is, for instance, up 6.64% in the last three months, and 25% or so in 2019.

It seems like a solid choice for broad exposure to small caps. I hold this at Fidelity, and the VSMAX small cap index at Vanguard (in addition to VSIAX for small value tilt). They may or may not outperform the S&P 500 in the near term, but they are playing their role in my portfolio: accurately representing returns from these sectors of the market. What else do you expect from a small cap index?

palaheel
Posts: 242
Joined: Wed Mar 22, 2017 7:35 am

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by palaheel » Sat Feb 15, 2020 9:48 am

What to do with FSSNX depends on the problem you're trying to solve, and that's not clear.

Is this a problem of "this fund (FSSNX)," "this benchmark," "the small cap tilt," or something else?

If the problem is FSSNX, you have a lot of VTSMX, a tax managed small cap fund. Why not move the money there? I understand saying "I like small blend, but I picked a stinky fund." Then fix the stinky fund.

If the problem is the Russell 2000 vs the S&P 600, then why not move the money to VTSMX or some other S&P 600 tracker? I understand saying "I like small blend, but I picked the wrong benchmark." Then fix the benchmark choice.

If the problem is with a small cap tilt, and that is why you are considering moving the FSSNX money to the S&P 500, are you also uncomfortable with VTSMX? This sounds like a much bigger issue with your investment strategy, or ability to stay the course.
Markets crash. Markets recover. Inflation takes your money FOREVER.

dcabler
Posts: 1225
Joined: Wed Feb 19, 2014 11:30 am

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by dcabler » Sat Feb 15, 2020 9:57 am

stocknoob4111 wrote:
Sat Feb 15, 2020 12:43 am
I have about $20k worth of FSSNX which is a Fidelity fund tracking the Russell 2000. I acquired this position in mid Jan 2019 and have put in total contributions of about $16,000 or so and the gains are about $4k or so since then.

Question - The fund has trailed the S&P 500 significantly since Feb 2019.... 9.34% CAGR vs 21.67% for the S&P 500. Should I cut my losses and dump this fund and add it to my S&P 500 position or should I wait for it to recover?

This is only a small part (10%) of my total Small Cap position, the majority is in VTMSX which tracks the S&P 600.
It's doing it's job, which means sometimes it's going to outperform the SP500 and sometimes it's not. Many of us own small caps because we believe that in the long term we will get some outperformance relative to a large cap blend such as the SP500 or a TSM fund. And one year in no way counts as "long term". Google in this forum "small caps" and you'll get more info about this debate than you probably ever wanted to see. And no doubt the debate will start up once again in this thread.

Now, if you're already convinced that small caps are for you, you've done your research and you understand that there may long be periods of underperformance relative to large caps and that you can live with that, then the question is no longer whether FSSNX has underperformed the S&P500. The question is which small cap index do you want to hitch your wagon to? I personally like the S&P indices since they seem to have a quality gate that eliminates some of the junk from their index. But that's me, YMMV.

Cheers.

Dottie57
Posts: 7786
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by Dottie57 » Sat Feb 15, 2020 10:07 am

Over the 20+ years in my 401k, the Russell 2000 fund has done well. It had ups, downs and sideways times. But all in all it has done well.

User avatar
nisiprius
Advisory Board
Posts: 39970
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by nisiprius » Sat Feb 15, 2020 10:32 am

If the fund were noticeably underperforming the Russell 2000 index, that might be troubling. If it were not only underperforming but the underperformance was localized in time, as if the fund had goofed or stumbled or screwed up, that might be troubling.

But in fact, according to Morningstar it has not only tracked the Russell 2000 very closely in detail, but even outperformed it (by a microscopic amount). This suggests that Fidelity is doing a good job of managing the fund. An expense ratio of 0.03% is not only low, it's low even by Boglehead standards.

The FSSNX fund itself in blue, Russell 2000 index in orange:

Source

Image

You say you bought it in January of 2019, so if we look at only the performance since then, again, we see no indication of any tracking error and again we see (a hair's breadth) of outperformance.

Image

So we need to go back to what you wanted and expected. If you expected that small-cap funds to reliably and continuously outperform broad market funds virtually all the time, year by year, almost every year--that was not a realistic expectation, and you need to take a deep breath and decide just what it is that you do expect.

If you have a high conviction that you want a small-cap tilt, state your actual reason, which should be something deeper than "small-caps outperform." If you are asking, "is the fund a good way to get a small-cap tilt" my answer is "Sure."

If the question is whether this is the best of all ways to get it, whether the Russell 2000 is the best of all small-cap indexes, etc. I shrug and say "I dunno."

Swapping one small-cap index fund for another isn't going to make much difference either way.

Before actually doing anything, however, I'd spend time poking around and asking two questions that are more important than "which small-cap fund."

1) Do I want a small-cap tilt at all?
2) If I do want a small-cap tilt, should it be just "small", or should it be "small value?"
Last edited by nisiprius on Mon Feb 17, 2020 7:06 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Elysium
Posts: 2133
Joined: Mon Apr 02, 2007 6:22 pm

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by Elysium » Sat Feb 15, 2020 10:43 am

OP,

Let me guess. You made a bet last year based on commentary in the finance media and/or financial forums such as this, that Small Caps are about to make a come back since Large Caps had a long run and the valuations are looking favorable for them. But, your bet hasn't panned out the way you expected so far, but again it is only about a year since you made that bet. Did you expect it to pay off immediately, are you concerned it may now take many years to pay off, perhaps never will? These are things you need to consider before you make such bets, otherwise stick with a plan no matter what. If you wish to make change at the minimum give it 7-10 years to play out.

Topic Author
stocknoob4111
Posts: 1021
Joined: Sun Jan 07, 2018 12:52 pm

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by stocknoob4111 » Sat Feb 15, 2020 1:04 pm

Thanks for all the responses, some clarifications about the issues that were brought up. I most definitely want to stick with Small Cap, my issue isn't with the asset class but rather the Russell 2000 benchmark and if it is good to hold this benchmark long term.

I acquired this fund when I did a "roll in" of my Rollover IRA to my 401k so that I could do a backdoor Roth. The original allocation of all the funds in my rollover IRA were in a bunch of different funds - FCNTX (Contra fund), FSMDX (Mid cap), FXAIX (S&P 500) etc. Unfortunately 95% of my 401k is filled with high expense ratio junk so my only 2 low expense choices were S&P 500 (FXAIX) and Fidelity Small Cap (FSSNX) so I divided the funds in a ratio that I was happy with.

At the time I had read that the Russell 2000 was inferior to the S&P 600 (which I hold in my taxable) but I wasn't too concerned with it. I looked at the historical performance and it has been pretty good and I did not have a choice of S&P 600 in my 401k so I went with this fund as a good enough equivalent.

But in the last few months I have increasingly read how holding the Russell 2000 long term isn't a great idea. Some info I have read relates to how the quality of the index has gone downhill with an increasingly large number of companies having no profits or having losses. Hence this thread to clarify if holding this benchmark long term still makes sense.

User avatar
nedsaid
Posts: 13011
Joined: Fri Nov 23, 2012 12:33 pm

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by nedsaid » Sun Feb 16, 2020 11:25 am

stocknoob4111 wrote:
Sat Feb 15, 2020 12:43 am
I have about $20k worth of FSSNX which is a Fidelity fund tracking the Russell 2000. I acquired this position in mid Jan 2019 and have put in total contributions of about $16,000 or so and the gains are about $4k or so since then.

Question - The fund has trailed the S&P 500 significantly since Feb 2019.... 9.34% CAGR vs 21.67% for the S&P 500. Should I cut my losses and dump this fund and add it to my S&P 500 position or should I wait for it to recover?

This is only a small part (10%) of my total Small Cap position, the majority is in VTMSX which tracks the S&P 600.
You bought this because you wanted Small Cap stocks didn't you? The fund is doing exactly what it is designed to do and in my view there is no reason to sell. Would you sell an S&P 500 fund because it underperformed Google? I think you need to think through your investment approach, take some time and write an Investment Policy Statement. Whatever you own is always going to trail something else. Look back and try to remember the reason you bought this. Hopefully it wasn't because it was outperforming the S&P 500 at the time. I am concerned you will be endlessly whipsawed as you try to chase performance.
A fool and his money are good for business.

User avatar
nedsaid
Posts: 13011
Joined: Fri Nov 23, 2012 12:33 pm

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by nedsaid » Sun Feb 16, 2020 11:27 am

stocknoob4111 wrote:
Sat Feb 15, 2020 1:04 pm
Thanks for all the responses, some clarifications about the issues that were brought up. I most definitely want to stick with Small Cap, my issue isn't with the asset class but rather the Russell 2000 benchmark and if it is good to hold this benchmark long term.

I acquired this fund when I did a "roll in" of my Rollover IRA to my 401k so that I could do a backdoor Roth. The original allocation of all the funds in my rollover IRA were in a bunch of different funds - FCNTX (Contra fund), FSMDX (Mid cap), FXAIX (S&P 500) etc. Unfortunately 95% of my 401k is filled with high expense ratio junk so my only 2 low expense choices were S&P 500 (FXAIX) and Fidelity Small Cap (FSSNX) so I divided the funds in a ratio that I was happy with.

At the time I had read that the Russell 2000 was inferior to the S&P 600 (which I hold in my taxable) but I wasn't too concerned with it. I looked at the historical performance and it has been pretty good and I did not have a choice of S&P 600 in my 401k so I went with this fund as a good enough equivalent.

But in the last few months I have increasingly read how holding the Russell 2000 long term isn't a great idea. Some info I have read relates to how the quality of the index has gone downhill with an increasingly large number of companies having no profits or having losses. Hence this thread to clarify if holding this benchmark long term still makes sense.
I have owned an S&P 600 Small Cap Index ETF for years and have been pleased with it. Yes, the Russell Index you have used has taken a lot of criticism over the years. I also own the Fidelity Small Cap Index Fund as you do. You see lots of talk about the "good" indexes vs. the "bad" indexes and in the factor threads, the "good" factor products vs. the "bad" factor products. I would rather be in the S&P Small-Cap 600 rather than the Russell 2000 but sometimes close enough is close enough and good enough is good enough. Lots of folks own the Vanguard Extended Market Index, haven't heard anyone criticize that fund. My suspicion is that the Russell 2000 over the long term has been plenty well good enough.
A fool and his money are good for business.

User avatar
Nicolas
Posts: 1662
Joined: Wed Aug 22, 2012 7:41 am

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by Nicolas » Sun Feb 16, 2020 4:42 pm

The only small cap index fund in my 401(k) tracks the Russell 2000, and no total market fund is available. Like you I preferred the S&P 600 for my small cap, so I went with 100% S&P 500 in my 401(k) (0.01% ER) and for my small cap portion I invested in IJR (iShares Core S&P Small-Cap ETF) in my Roth and taxable accounts.

The concerns I had with the Russell 2000 is that all the buy/sell decisions within the index are known and so the stocks in the index are subject to front-running. The R2000 was never intended as an investment vehicle. Unlike the R2000 the S&P 600 requires at least a year of profitability. And if you chart the two IJR is the clear winner.

Puretaxableindexer
Posts: 52
Joined: Sun Feb 16, 2020 8:05 pm

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by Puretaxableindexer » Sun Feb 16, 2020 8:46 pm

No. Stay in small caps because they will turn around. It's about asset allocation and small caps are part of it.

averagedude
Posts: 904
Joined: Sun May 13, 2018 3:41 pm

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by averagedude » Sun Feb 16, 2020 9:10 pm

I know your dilemma.I was 95% domestic equities for 27 years and decided to go 65/35 US/ INT in the last 3 years. Seems like I am throwing good money at bad, but I refuse to give in and I am staying the course for better or worse. Sometimes it is about reducing risk instead of maximizing returns. Stay the course if you believe in the small cap premium. If you choose to give up, be sure to never go back. Performance chasing is one of the biggest classic mistakes that amateur and pro investors make.

atdharris
Posts: 196
Joined: Wed Jan 02, 2019 3:18 pm

Re: Small Cap fund - Russell 2000 [underperforming - should I sell?]

Post by atdharris » Mon Feb 17, 2020 1:05 pm

I sometimes think about dumping my small cap fund and just holding the S&P 500. I have about 9-10% of my portfolio in IJR, but I am not sure it really makes a difference in the long run by holding 10% in IJR or just going straight VOO. Small caps performed well in the 2000s compared to the S&P 500, but it is not like I am 100% in small caps.

Post Reply