Small cap value may outperform
Research suggests small cap value could outperform large cap growth by 700 basis points annually over a decade, potentially doubling returns.
Small cap value's historical performance supports the claim, showcasing periods of significant outperformance following economic recoveries. This is due to their higher sensitivity to economic cycles and potential for rapid growth from a smaller base. However, increased volatility is a factor to consider. Small cap value stocks can experience sharper declines during economic downturns, requiring a longer investment horizon to realize potential gains. Dimensional Fund Advisors (DFA) emphasizes the importance of a disciplined, long-term approach to capture the small cap value premium. Their research indicates that consistent exposure, even during underperforming periods, is crucial for maximizing returns over the long run.
