Small Caps: How Long Can This Keep Going on?

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AUTHOR: steve abramowitz on 6/22/2024

How Long, a big rock hit in the seventies, opens with, “How long has this been going on?” A guy who suspects his lady is cheating on him declares “I’m not dumb.” I can’t say the same for  myself, because I’ve been having a five-year affair with the wrong size stock and I’m not so sure I can take it anymore.

While the whole world has been piling into large cap stock funds, I’ve been nibbling at their purportedly undervalued small cap counterparts. I recently confessed having been caught dallying in international fare, so I’m no stranger to a mismatch.

I’ve just consulted the new issue of Barron’s to see how far I’ve sullied my reputation. Let’s see. The S&P 500 has gained almost 18% year-to-date, but the Russell 2000 small cap barometer is a hair below even. A strait-laced investor, I’m shocked at such behavior!

Turning to Morningstar, I learned that the outperformance of broad market index funds may be almost as much due to their size configuration as their technology overweight. Not surprisingly, the venerable and top-heavy S&P 500 index ETF (SPY) has no small caps. And the leading ostensibly  “total market “ index ETF (VTI) relegates only 8% to them. A devoted value investor, I’m flirting with a 20% stake.

I’m done with how long this betrayal has been going on. Just tell me how long it will keep going on.

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