Displaying items by tag: outperformance
ESG has been growing hand over fist, but it is still getting a lot of flak in the press. Two major reasons why. Firstly, many feel the sector’s performance is in question, largely because older investors believe there is an intrinsic misalignment between social & environmental goals, and returns. Secondly, many are starting to question whether ESG is really making an impact on society and the environment. Well, we cannot answer the second question, but number one has some new evidence. Morningstar recently ran an analysis of ESG funds, and found that: “25 out of 26 ESG equity index trackers beat funds that were conventionally weighted by market capitalisation, when it came to tracking the most common benchmarks last year”.
FINSUM: Proof of ESG outperformance depends highly on the timeframe being observed and the funds in question (which makes sense). For example, the last 18 months has been great for ESG because of some initial responses to the pandemic. Our view is that a lack of relationship to either out- or underperformance are both a good thing, since ESG is still accomplishing a social benefit and thus is a solid choice in the absence of any negatives to the investor.
Emerging markets are a key part of a well-diversified growth portfolio, but Covid has hindered how many…see the full story on our partner Magnifi’s site.
ETFs have dominated the investment world for the last decade as investors seek to minimize risk while getting particular market exposure, but…see the full story on our partner Magnifi’s site.
The conventional wisdom in markets has always been that large caps hold up better in periods of volatility, and small caps outpace in returns when markets start to recover. The reality, however, is far different. If you take a look at a series of turbulent periods of the last few decades, you can see a clear trend: midcaps actually perform better. They suffer similar losses during periods of volatility, but actually recover faster than both “domestically-focused” small caps and “mature” large caps. In periods of high volatility, midcaps have fallen by 41% on average, slightly less than large caps at 42.93% and small caps at 45.05%. In periods of recovery, it has taken midcaps only 304 days to recover versus 544 for large caps, and 432 for small caps.
The data highlights the significant outperformance of midcaps versus their peers. So how can investors best commit capital to midcaps? Take a look at State Street’s SPDR S&P MIDCAP 400 ETF.
n.b. This is sponsored content and not FINSUM editorial.
One of the guiding mantras of small cap investing has always been that small caps tend to outperform their larger peers over the long-term. While always cyclical, small caps have outperformed large caps over the last several decades. However, in recent years that has all changed. In fact, since 2005, the relative performance between the two share classes has been trendless, with no discernible relationship. This is directly counter to the almost century-long trend that preceded it. One CIO explained the change this way, saying “Market-cap tilts have historically been about catching, and riding, strong and persistent performance waves … Over the last 13 years, in an unconventional fashion, the opportunities to add performance from cap tilts have been relatively small and have required frequent and expert timing”.
FINSUM: Interesting change for small caps. We suspect the change has to do with a combination of the pre-Crisis boom and the extraordinary liquidity thereafter.