The Small-Cap Premium Was Supposed to Beat Large Caps Over Time. It Hasn't in 15 Years. Here's the Actual Gap.
Small-cap investors have been disappointed for years. Here's why that trend might finally be ready to reverse.
Overview
The idea of a small-cap premium goes back decades. The concept is straightforward: Smaller companies carry more risk, and the markets compensate that higher risk with higher long-run returns. It would be the reasoning behind owning something like the iShares Russell 2000 ETF (NYSEMKT: IWM) alongside a large-cap fund, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO).
There's just one problem. With just a few exceptions, that small-cap premium hasn't materialized for at least 15 years.
The following chart shows small-cap stock performance relative to large-cap stocks over this time frame. If investors were earning a small-cap premium, you'd expect this trendline to be moving up. Instead, it's been trending down for years.
Details
Source
Originally published at www.fool.com.