Back around 10-12 years ago once piece of conventional wisdom for a
relatively simple allocation for the *domestic equities part* of a
portfolio was a large-cap/small-cap mix, probably with small-cap
overweighted and a value tilt in both capitalization sectors.
Mid-caps conspicuously missing (I believe the argument was that their
returns series were too similar to large-caps to merit inclusion as an
asset class in a relatively simple portfolio).
So what about today? Does that still hold up?
Such an interesting subject to me, since what has practically been my
home page for many years is a chart that keeps tabs of small/mid/large
cap vs tech and foreign. But I can only bat around impressions since
it is rare I take the trouble to bring in total returns and subdivide
by growth and so on.
But my impression is midcap is often king, and carries most of the
outperformance of small cap without the downward volatility. See a 5
where you can check various periods which are each very interesting. I
chart against spy sp500: ijj for mid value and ijk for mid growth -
compare their xmas colors of red and green. I throw in ijs for
smallcap value which used to be defended on this forum as the one
inefficiently priced category that always won over the long haul.
Since midcap growth is so often the winner with big upside and
moderate downward volatility, I also throw in my favorite RFG which
holds the same stocks except in equal rather than cap weighting. Wow,
follow those hot red and especially yellow colors almost always at the
top for time periods 3mo, 6mo, 1yr, 2yr, 5yr. See the modest dip of
midcaps except for value.
There are parts of the business cycle where some of these are supposed
to thrive and others not... maybe someone would like to remind us. Or
you can just keep track of the macro trends on a chart like I
included, maybe switching to a total return one when you are close to
a decision point.
Wow, try hitting "max" time period on that chart, or if you lost it I
will repost below. It flips the order of the winners and over the last
10 years of a slight decline of sp500, it shows midcap growth up about
200% and small/mid value up about 400%! Ignore RFG because it's later
start is attached to the wrong comparison curve - it actually beats
all during it's short lifetime.
Or look at the last 25ish years to see midcaps up about 7fold vs about
5+fold nasdaq, 4fold smallcap and 3+fold sp500. All these numbers take
with a grain of salt because they depend on arbitrary endpoints -
instead look at the thrust of the curve, and I don't mean mindless
extrapolation but nuanced study.
Yes, this graph has irrational elements, but Yahoo is choking on index
price retrievals forcing me to enter one index twice and use goofy
time periods. You know how to bring up your own more trusted data;
this is only quick and dirty brainstorming of themes to confirm
The interactive flash charts of yahoo usually are more powerful, but
are quite flakey at the moment. My favorite GLNG shows up totally
different on 2 one month charts. One shows it up 5% and another 1
month representing a different account shows it up 50%! I can
recognize it as the 3 month chart in that case, but everything else on
the chart is 1 month. Must be another downsize week for poor Yahoo...