logo small

Small Value Roars Back

It’s only been a couple months since I was encouraging patience with small cap value based on past examples of quick turnarounds in relative performance. At the risk of sounding like a rooster taking credit for the dawn, I am comfortable saying that July’s US small cap value resurgence was a welcome development.

This story has been deservedly covered in the media, and here are my favorite stats for performance of small value versus large growth based on returns for the Russell 2000 Value Index and Russell 1000 Growth Index.

CONTINUE READING

Print Email

Japan in the News, But It’s Nothing New

Japan’s stock market has been in the news lately for setting “a new market high.” While its stock market did exceed the 1989 high-water mark, this strains the definition of “news.” Using a market-cap-weighted index that includes dividends, that threshold was cleared back in May 2017.

Japan’s stock market history is an important talking point but for a different reason: the prospect of a market going decades without a positive cumulative return. Many investors, who expect the US stock market’s recent dominance to continue, have questioned the benefits of global diversification. They would do well to view Japan as a cautionary tale. I doubt many investors in the late 1980s would have expected the broad Japanese market to go nearly three decades without a new high. Even some of the concerns about Japan in 1989—high valuations, top-heavy performance—resemble today’s concerns about the US market.

History says it’s challenging to pick which countries will outperform. Japan’s experience suggests there’s a lot of uncertainty around individual markets. Global diversification helps mitigate that uncertainty.

CONTINUE READING

Print Email

Don’t Get Fed Up

One of the reasons why Fed watching is an unreliable input into investment decisions is because the Fed’s expected actions are already reflected in market prices. By the time the Fed executes rate changes, markets have already had time to form an expectation and may not need to react any further.

It’s also important to note there’s variation in market interest rates that is unrelated to changes in the Fed funds rate. For example, the Fed’s target range has remained constant over the past year. Meanwhile, the 10-year Treasury yield has fluctuated over this period, falling in the last quarter of 2023 before rising again this year.

This is a good example of why it’s hard for investors to draw actionable conclusions from Fed watching. The returns on your bond portfolio are likely not that closely correlated with the Fed funds rate. And unless you looked up future Treasury yields while out in your DeLorean, it's unlikely you will be able to consistently outperform markets through interest rate predictions.

CONTINUE READING

Print Email

Dude, You're Gettin’ a Dell

Russell’s annual reconstitution took place last week, and one of the notable additions to the Russell 3000 Index was Dell. Some investors may be confused as to why the stock of a company with a household name and a $98 billion market value was not already part of this broad US stock market index. Dell was dropped from the index during the 2023 reconstitution due to Russell’s eligibility rules. Its reinstatement in 2024 signals it once again checks the box for inclusion.

Russell 3000 Index fund investors may be more interested in Dell’s performance during its one-year exile. During the stretch between Russell’s 2023 and 2024 reconstitution events, Dell’s stock posted a cumulative total return of 177.5%—more than seven times higher than the Russell 3000 Index.

This is another example highlighting how index rules and procedures can drive a wedge between what the market offers and what index fund investors receive, particularly if the process is conducted only once a year, as is the case for Russell indices.

CONTINUE READING

Print Email

What Every Investor Should Know

Whether you’ve been investing for decades or are just getting started, at some point you’ll likely ask yourself some fundamental questions. The 10 listed here highlight key principles, backed by data and common sense, that can help improve your odds of investment success.

CONTINUE READING

Print Email

More Articles ...

CONNECT WITH US ON SOCIAL MEDIA!