What are the advantages of also including a Small-Cap index Fund (e.g. S&P 600
Small Cap Fund) in a portfolio over and above a Mid-Cap Fund (e.g. S&P 400). As
far as I can tell, the Mid-Cap Index has done almost as well, if not better than
the Small Cap (possibly with lower day to day volatility and lower risk?)
This data is for the period ending 11/30/05:
SP500 8.44%/12.09%/0.64%
SP600 11.07%/21.36%/13.58% 1/3/5 years
SP400 16.46%/19.19%/10.06%
Small caps have done much better.
"SD" <> wrote in message
news:drtbnm$rav$
> What are the advantages of also including a Small-Cap index Fund (e.g. S&P
> 600 Small Cap Fund) in a portfolio over and above a Mid-Cap Fund (e.g. S&P
> 400). As far as I can tell, the Mid-Cap Index has done almost as well, if
> not better than the Small Cap (possibly with lower day to day volatility
> and lower risk?)
Does this include dividends?
Ed wrote:
> This data is for the period ending 11/30/05:
> SP500 8.44%/12.09%/0.64%
> SP600 11.07%/21.36%/13.58% 1/3/5 years
> SP400 16.46%/19.19%/10.06%
>
> Small caps have done much better.
>
>
>
> "SD" <> wrote in message
> news:drtbnm$rav$
>
>>What are the advantages of also including a Small-Cap index Fund (e.g. S&P
>>600 Small Cap Fund) in a portfolio over and above a Mid-Cap Fund (e.g. S&P
>>400). As far as I can tell, the Mid-Cap Index has done almost as well, if
>>not better than the Small Cap (possibly with lower day to day volatility
>>and lower risk?)
>
>
>
"SD" <> wrote in message
news:drtg4b$9g$
> Does this include dividends?
Yes, I believe it's total return.
www.barra.com
> Ed wrote:
>> This data is for the period ending 11/30/05:
>> SP500 8.44%/12.09%/0.64%
>> SP600 11.07%/21.36%/13.58% 1/3/5 years
>> SP400 16.46%/19.19%/10.06%
>>
>> Small caps have done much better.
>>
>>
>>
>> "SD" <> wrote in message
>> news:drtbnm$rav$
>>
>>>What are the advantages of also including a Small-Cap index Fund (e.g.
>>>S&P 600 Small Cap Fund) in a portfolio over and above a Mid-Cap Fund
>>>(e.g. S&P 400). As far as I can tell, the Mid-Cap Index has done almost
>>>as well, if not better than the Small Cap (possibly with lower day to day
>>>volatility and lower risk?)
>>
>>
I believe Mid Caps are more correllated to large caps.
Small caps are less correllated to lage caps
relatively speaking. I read this on T Rowe Price documents years ago.
examples which might help:
compare S&P 500 to Wilshire 5000- the top 500 companies in Wilshire
5000 make up a significant amount of the performance according to what
I remember
compare the S&P 500 with the wilshire 4500. The wilshire 4500 has the
"largest" 500 companies removed.
compare the wilshire 4500 with the two indexes above and see if
mid+small (wilshire 4500) compares to S&P 600 or S&P 400. When one
went down, did other go down?
the advice which writer of article was suggesting was avoid mid caps,
it brings more risk without the return of the large caps.
But I looked at return numbers then (this was in 1998 or so) and I
could not ignore mid cap returns, relative to some large cap and index
funds. Especially during tech boom, I had a mid cap fund returning
100%+, my large caps did well, but not that well.
So I keep a mid cap fund in both my 401k and Roth IRA. I have also
added one Mid Cap fund to my wife's Roth IRA.
This is in addition to large caps and small caps, and international
funds.
"Ed" <> wrote in message
news:
>
> "SD" <> wrote in message
> news:drtg4b$9g$
> > Does this include dividends?
>
> Yes, I believe it's total return.
> www.barra.com
>
> > Ed wrote:
> >> This data is for the period ending 11/30/05:
> >> SP500 8.44%/12.09%/0.64%
> >> SP600 11.07%/21.36%/13.58% 1/3/5 years
> >> SP400 16.46%/19.19%/10.06%
> >>
> >> Small caps have done much better.
It really does depend on one's time frame, doesn't it? You seem to have
declared smallcaps the "winner" despite poorer 1 year performance, because 3
and 5 year performance is better. But 10 year is worse. (I'm not picking a
"winner" one way or the other, just curious about the choice of time
frames.)
Total return for S&P indices, through end of last month:
This page currently (through 1/31/2006) shows ten year total returns of:
S&P 500: 8.99%
S&P 500 (equal wt): 12.001%
S&P 400 Midcap: 14.85%
S&P 600 Smallcap: 13.04%
--
Mark Freeland
Time frame is always important and how each class does in a particular time
frame, your's is more important still.
I selected the time frames indicated because I had a link all ready to bring
me there.
The Barra numbers that I posted went to 5 years because there was no 10 year
data for the SP600.
I prefer mid cap and small cap stocks to large cap.
Here's another one, this is on a chart prepared by Ibbotson Associates,
unfortunately it doesn't include mid caps:
$1 invested in small caps at year end 1925 would be worth $5,520 at year end
1996.
$1 invested in large caps, $1,828.00
$1 in long term government bonds $39
$1 in T-bills $14
$1 in inflation $9
"Mark Freeland" <> wrote in message
news:43e25d7a$0$95962$
> "Ed" <> wrote in message
> news:
>>
>> "SD" <> wrote in message
>> news:drtg4b$9g$
>> > Does this include dividends?
>>
>> Yes, I believe it's total return.
>> www.barra.com
>>
>> > Ed wrote:
>> >> This data is for the period ending 11/30/05:
>> >> SP500 8.44%/12.09%/0.64%
>> >> SP600 11.07%/21.36%/13.58% 1/3/5 years
>> >> SP400 16.46%/19.19%/10.06%
>> >>
>> >> Small caps have done much better.
>
> It really does depend on one's time frame, doesn't it? You seem to have
> declared smallcaps the "winner" despite poorer 1 year performance, because
> 3
> and 5 year performance is better. But 10 year is worse. (I'm not picking
> a
> "winner" one way or the other, just curious about the choice of time
> frames.)
>
> Total return for S&P indices, through end of last month:
>
>
> This page currently (through 1/31/2006) shows ten year total returns of:
> S&P 500: 8.99%
> S&P 500 (equal wt): 12.001%
> S&P 400 Midcap: 14.85%
> S&P 600 Smallcap: 13.04%
>
> --
> Mark Freeland
>
>
>
jIM wrote:
> I believe Mid Caps are more correllated to large caps.
> Small caps are less correllated to lage caps
Doesn't look like the case:
Seems small and mid-cap are more correlated to each other than to large caps
> relatively speaking. I read this on T Rowe Price documents years ago.
>
> examples which might help:
> compare S&P 500 to Wilshire 5000- the top 500 companies in Wilshire
> 5000 make up a significant amount of the performance according to what
> I remember
> compare the S&P 500 with the wilshire 4500. The wilshire 4500 has the
> "largest" 500 companies removed.
> compare the wilshire 4500 with the two indexes above and see if
> mid+small (wilshire 4500) compares to S&P 600 or S&P 400. When one
> went down, did other go down?
I can't find a chart of the Wilshire 4500 that I can plot onto the above graph.
> the advice which writer of article was suggesting was avoid mid caps,
> it brings more risk without the return of the large caps.
Mid-Caps are returning better than large caps for as far back as I go with yahoo
finance for the ^mid index.
> But I looked at return numbers then (this was in 1998 or so) and I
> could not ignore mid cap returns, relative to some large cap and index
> funds. Especially during tech boom, I had a mid cap fund returning
> 100%+, my large caps did well, but not that well.
Well even after the bust Mid-Caps outperformed Large Caps. The S&P 500 has
nearly 0 5yr return.
> So I keep a mid cap fund in both my 401k and Roth IRA. I have also
> added one Mid Cap fund to my wife's Roth IRA.
I own both IJR and MDY but I am considering additions only to MDY because IJR
returns are similar to MDY (slightly lower as Ed pointed out) = ignoring small
caps for the time being.
> This is in addition to large caps and small caps, and international
> funds.
>
I'm young = can take on more risk, so I am heavily into international funds, esp
emerging markets. I don't see that changing for a while. I'm hoping someone
comes out with an India ETF.
"jIM" <> wrote in message
news:
> I believe Mid Caps are more correllated to large caps.
> Small caps are less correllated to lage caps
That's true, the difference is IMHO significant (meaningful) but not large.
The coefficient of determination ("R squared") of rate of returns over the
past three years, compared with the S&P 500 are:
IJH: 82% (S&P 400 Midcap)
IJR: 75% (S&P 600 Small cap)
That means that 82% of a change in the midcap index can be explained by a
similar change in the S&P 500, while "only" 75% of a change in the smallcap
index can be explained by tracking the S&P 500.
As diversifiers, neither is a great asset class. See, e.g.
for correlation
coefficients betwen broader asset classes. (Note that correlation
coefficient here is "r", so you need to square it to get "R squared" [duh].)
> relatively speaking. I read this on T Rowe Price documents years ago.
> [...]
> the advice which writer of article was suggesting was avoid mid caps,
> it brings more risk without the return of the large caps.
It's the latter part of that sentence that I question. Midcaps do tend to
return more, as I've posted (and Ed has posted) in this thread, and as you
observed below. The question seems to be whether that extra reward is worth
the extra risk.
> But I looked at return numbers then (this was in 1998 or so) and I
> could not ignore mid cap returns, relative to some large cap and index
> funds. Especially during tech boom, I had a mid cap fund returning
> 100%+, my large caps did well, but not that well.
>
> So I keep a mid cap fund in both my 401k and Roth IRA. I have also
> added one Mid Cap fund to my wife's Roth IRA.
>
> This is in addition to large caps and small caps, and international
> funds.
--
Mark Freeland
soapbox in place------
why hasn't some enterprising ETF co. put out an XAX fund? need more
letter, email writing to the fund co.'s asking for this product.
(XAX is the AMEX index of small co.'s listed by the AMEX.)
,%5EIXIC,%5EDJI
and then back this chart down, thru the timeframes.
thank you.
Very interesting thread- I need to diversify my investments beyond
large cap and this has given me a good first blush perspective.