Large Cap Performance
A comparison versus the broader market
A few days ago, I talked about various fund styles for growth and size:
We can compare each of these styles to the performance of the total stock market using another fund (VTI). Here is an example using large cap stocks (VV):
These two series look pretty similar but if we take the ratio of one versus the other, we see some fascinating behavior:
Leading up to COVID, there was a trend of outperformance, which accelerated quickly as the recession hit. However, in recent months, large cap returns haven’t been as good as the broader market and thus performance has returned to the trend. While this long-term trend is almost flat, we can still use it as a comparison benchmark for the ratio to get an even cleaner view:
As it stands right now, recent large cap underperformance has started to run below trend! It’s quite the reversal from just a few months ago but makes sense given the recent strength in small cap stocks.
What this indicates is that there might be some relative undervaluation of large cap stocks, if only slightly. That being said, history shows that the trend can take a long time to reverse once it starts moving in a particular direction. So, it may be a bit of a wait still if non-large cap stocks continue their impressive run.
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