Small/Mid-Cap Growth
February 23, 2010
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
SMid as a Substitute for Small Cap
Investors interested in gaining exposure to the small-capitalization growth equity style should consider the small/mid (“SMid”) capitalization style as a way to capture the benefits of small-cap growth. Research shows that the SMid growth space can offer diversification and low correlation to larger-cap equities with additional benefits gained from exposure to the lower cap range of the mid-cap growth space, which offers attractive performance and risk/return characteristics.
The following analysis uses the Russell 2500 Growth Index as a proxy for SMid-cap growth equities and the Russell 2000 Growth Index as a proxy for small-cap growth equities. The time period covered in this analysis is the entire 23¾-year history of the Russell 2500 Growth Index: January 1986 through September 2009.
Historical Performance
Historically, SMid-cap growth equities have outperformed small-cap growth on a quarterly, annual, cumulative, and rolling 1-, 3-, 5-, and 7-year basis.
SMid-cap growth outperformed small-cap growth in 60 of the 95 quarters covered in this period (63.16%). The average excess quarterly return was 1.45% when SMid-cap growth outperformed small-cap growth and -1.13% when SMid-cap growth underperformed small-cap growth.
SMid-cap growth outperformed small-cap growth in 16 of the 23 calendar years covered in this period (69.57%). The average excess annual return was 4.2% when SMid-cap growth outperformed small-cap growth and -1.82% when SMid-cap growth underperformed small-cap growth.
Over the entire 23¾-year period, SMid-cap growth outperformed small-cap growth by 212.24% on a cumulative basis and 2.22% on an average annualized basis.
For the trailing 5-, 7-, 10-, 15-, 20-, and 23¾-year periods, SMid-cap growth outperformed small-cap growth by more than 1.5% on an average annual basis
On a quarterly rolling 3-year basis, SMid-cap growth outperformed small-cap growth in 78 of the 84 periods (92.86%). The average annualized excess return for the three-year period was 2.36% when SMid-cap growth outperformed small-cap growth and -0.53% when SMid-cap growth underperformed small-cap growth. On both a rolling 5- and 7-year basis, SMid-cap growth outperformed small-cap growth 100% of the time. The average annualized excess return for SMid-cap growth was 2.18% on a 5-year basis and 2.19% on a 7-year basis.
The longest period that SMid-cap growth underperformed small-cap growth was the four consecutive quarters from Q2 2003 to Q1 2004. Only three other times in the 23¾-year period has SMid-cap growth underperformed for at least three consecutive quarters.
Display article as PDF for printing.
Would you like to send this article to a friend?
Remember, if you have a question or comment, send it to .
