Large Cap Versus Small Cap Funds

Pinnacle Digest writes: In this article by Tom Maddell, our leading authority for fund investing, he explains the stark performance contrast between Small Cap Funds and Large Cap Funds.

Maddell discusses the strategic options investors are faced with in today’s environment of fund investing. The option of whether to balance a fund portfolio in Small Cap Funds, Bond Funds and Large Cap Funds is examined thoroughly. As documented by Tom, there is a cycle to each of the three mentioned types of funds, with all out performing the other over different periods of time. While he promoted the practice of diversification, Tom believes that changing fund allocation given historical performance is a must - particularly in this environment,

For example: Take a look at the chart Tom provides in his cyclical comparison for the S&P 500 Index vs Average Small Cap Fund.



We are well aware that the large cap US stock market has been virtually flat for the past decade. In contrast, the average Small Cap Fund has consistently outperformed its big brothers. Maddell points out that “Going back to at least the 1970s, Small Cap outperformance cycles have tended to average a little more than 5 years, making the recent streak of nearly uninterrupted strength appear over-extended. And, in fact, over the last 12 months, things have reversed - the average Large Cap fund is now ahead by more than 5%.”

Maddell also points out that typically Small Cap Funds tend to beat Large Cap funds in the early stages of a bull-market; however, once the bull-market matures (like it currently has), Large Caps outperform.

Click here to read Tom Maddell’s article on this subject