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think small rather than big

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Is It Time to Think Small?

Aaron Levitt May 21, 2017

One of the major axioms of the investing world is that over long periods, small beats large.

Thanks to the research of economists Fama and French, small-cap stocks have shown their muscle and have managed to outperform large-cap equities during their study periods. The idea is that their growing revenues are potentially valued more by investors than their slower-moving, larger sisters.

And because of that, small-cap indexes and funds like the iShares Russell 2000 ETF (IWM) have gone on to crush large-cap stocks.

That is, until the recession. Since then, small-caps have functioned in a weird bizarro world where their outperformance was not guaranteed. And in fact, after an initial rebound from the depths of the recession, small-caps fell by the wayside.

But with Trump promising growth, small-caps have once again begun to move in a passive direction. The question is whether or not this is a false start in the current trend of underperformance, or if it is truly a return to small-caps’ former glory days.

Find all the small-cap ETFs available here.

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