In both fashion and stocks, style and size matter. Debates over large cap versus small cap — and value versus growth — have raged for decades.
The reality? Winners and losers change frequently, and often without warning.
U.S. money managers and funds tend to fall into one of four categories: large growth, large value, small growth and small value.
I decided to take a look down memory lane using ChatGPT to see which of the four categories produced the best results over the past 40 years, and thought you might like to see the outcomes:
Annualized $10,000 Rank Category * Return Growth 1 Small Value ~13.2% ~$1.35 million 2 Large Value ~11.5% ~$770,000 3 Large Growth ~10.8% ~$570,000 4 Small Growth ~9.8% ~$390,000 *Data using Russell indexes and ETF proxies
Investors should always be mindful of the Securities & Exchange Commission warning that “past performance is no guarantee of future results,” so the future might look different from this long history.
And since many investors don’t have a 40-year time horizon — or the patience to live through very long periods of underperformance as size/style factors change — let’s examine shorter time periods:
- 1985-1990: Value and smaller companies were strong performers following the early 1980s recession.
- 1995-2000: The market moved sharply toward large-cap growth (technology boom).
- 2000-2007: Leadership rotated back toward value and smaller companies after the dot-com collapse.
- 2010-2021: A long move toward large-cap growth (especially technology and platform companies).
- 2022-2025: A partial rotation back toward value and smaller companies, though large growth remains dominant.
What makes this even more challenging is investors’ almost endless habit of using the rear-view mirror and “chasing” recent returns.
Studying cash flows into mutual funds suggests that investors tend to wait to see what’s working and then jump in, often only to watch the tide change to a different size/style category.
Imagine buying large-cap growth stocks in 1998, just before the tech bubble burst, then shifting to small-value after the decline — only to miss the next long run in large growth starting around 2010.
It’s a pattern that helps explain why investor returns often trail the very funds they invest in. Simply put: it’s hard to succeed if you’re consistently buying high and selling low.
“Magic Mirror on the wall, who is the fairest one of all?”
THE EVIL QUEEN FROM “SNOW WHITE”
All of this reinforces the idea of “buying the market” instead of trying to “beat the market.” Using the Russell 3000 as a proxy for the entire U.S. stock makret, a $10,000 investment would have grown to approximately $580,000, representing about a 10.7% annualized return — just about the same as the large-cap S&P 500 index with broader diversification across thousands of companies.
Note: You might have done better if you held small cap/value stocks for the entire 40-year period, but only if you stuck with it through some long periods of lagging performance.
Finally, I am reminded that actively managed mutual funds rarely outperform the indexes over time.
According to the widely followed SPIVA Scorecard, only about 10% of activley managed funds beat the S&P 500 over 10 years, and even fewer over longer periods.
There’s something to be said to keeping it simple, keeping costs low, and focusing your time and energy on things that matter most.
In the end, that maybe the fairest choice of all.
