How Extreme Was Recent Large Growth Outperformance?

US small value stocks underperformed large growth stocks by about 4.5% per year over the past five years. Some investors have asked what went wrong with small value to garner such underperformance. Looking at returns over this period compared to the long term, we see the story is more about what went anomalously right for large growth.

Small value’s five-year number was squarely in the middle of its historical range of outcomes for rolling five-year returns, which span from –1.1% at the 10th percentile to 28.8% at the 90th percentile. Small growth and large value were both similarly far from their extremes over the past five years. Large growth, on the other hand, bumped up against its 90th percentile outcome of 19.6%.

It’s not clear that recent performance for value versus growth is helpful in predicting the future. A historically good run for growth doesn’t imply these stocks will come back to earth. But investors concerned about small value’s recent relative returns should be aware of which asset class outkicked its coverage over this stretch, while still enjoying the boost in return it provided to the overall market.

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Exhibit 1

5-Year Rolling Returns

July 1926–November 2024

This article originally appeared in Above the Fray, a weekly newsletter for Dimensional clients. It was not created, written, or produced by TwoTen Planning.

Index descriptions

Results shown during periods prior to each index’s index inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP.

Fama/French US Small Growth Research Index: Provided by Fama/French from CRSP securities data. Includes the higher 30% in price-to-book of NYSE securities (plus NYSE Amex equivalents since July 1962 and Nasdaq equivalents since 1973) that have smaller market capitalization than the median NYSE company.

Fama/French US Small Value Research Index: Provided by Fama/French from CRSP securities data. Includes the lower 30% in price-to-book of NYSE securities (plus NYSE Amex equivalents since July 1962 and Nasdaq equivalents since 1973) that have smaller market capitalization than the median NYSE company.

Fama/French US Large Growth Research Index: Provided by Fama/French from CRSP securities data. Includes the higher 30% in price-to-book of NYSE securities (plus NYSE Amex equivalents since July 1962 and Nasdaq equivalents since 1973) that have larger market capitalization than the median NYSE company.

Fama/French US Large Value Research Index: Provided by Fama/French from CRSP securities data. Includes the lower 30% in price-to-book of NYSE securities (plus NYSE Amex equivalents since July 1962 and Nasdaq equivalents since 1973) that have larger market capitalization than the median NYSE company.

Source: Ken French website.

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