Preparing for the Turn

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Any investor thinking about giving up on large and small value stocks after this late-in-the-game rally by large growth stocks (represented by the S&P 500 Index) should study the chart and tables below very carefully.

Here’s what you’ll find:

  1. The S&P 500 Index had a nice run from January 1995 until May 2001. It hasn’t moved ahead of the 30/30/40 Mix (before advisory fees) since then.
  2. Through May 2018 (Table 1, the peak of outperformance), the annual return for the 30/30/40 Mix was 1.4% higher than the S&P 500 Index, and total growth of wealth was 35% higher.
  3. Through the end of 2019 (Table 2), the annual return for the 30/30/40 Mix was still 0.8% higher than the S&P 500 Index, and total growth of wealth was still 19% higher.
  4. Through May 2020 (Table 3, the “COVID-19 effect”), the annual return for the 30/30/40 Mix was only 0.1% higher than the S&P 500 Index, and total growth of wealth was only 2% higher.

It’s clear to us that large and small value stocks have earned their place in a diversified, long-term-focused portfolio.

This most recent surge in the largest, highest-priced stocks over the past two years (and particularly the past few months) has not changed our minds, and the Equius team has been preparing for “the turn” in asset class performance through disciplined, proactive rebalancing.

The DFA US Large Cap Value Portfolio (DFLVX) and DFA US Small Cap Value Portfolio (DFSVX) are very good proxies for the performance of US large and small value stocks. The 30/30/40 Mix (rebalanced annually) is 30% S&P 500 Index, 30% DFLVX, and 40% DFSVX. The starting year of this illustration, 1995, is the first full calendar year when all four of the DFA US and international large and small value funds were available to select advisors and their clients.

Equius Partners, Inc. is a Registered Investment Advisor.

Past performance is not a guarantee of future results. The data and information set forth herein are provided for educational purposes only and should not be considered tax, legal or investment advice; a solicitation to buy or sell securities; or an opinion on specific situations – as individual circumstances vary. There is no guarantee an investing strategy will be successful. Investing involves risks, including possible loss of principal. Diversification does not eliminate risk, including the risk of market or systemic loss.

Please consider the investment objectives, risks, and charges and expenses of any mutual fund and read the prospectus carefully before investing. Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

© 2023 Equius Partners, Inc.

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