Level 0 ETF basics · Part 13/14

Small Cap Value: a factor premium with long dry spells

Two of the most thoroughly researched return factors are size (small companies) and value (cheaply valued companies). Combined as “Small Cap Value”, they are usually used as an addition to a broad core.

Grid of four fields by company size and valuation style, with the field for small, cheaply valued companies highlighted
Two axes, four fields: (1) large growth stocks, (2) large value stocks, (3) small growth stocks, (4) small, cheaply valued companies. "Small cap value" means field 4. Broad world indices weight by market value and are therefore dominated by fields 1 and 2.

The funds in the catalog with their current holdings:

Compared with the plain MSCI World , both hold far fewer large tech names and more industrials and financials.

The limitation

The extra return measured in studies was very unevenly spread over time. Small Cap Value trailed the overall market for more than a decade, most recently in the 2010s. Whether a factor premium will persist is disputed in the research.

Information only, not investment advice.