With nearly 11 months in the books, 2021 has been quite a year for the markets. Despite the lingering effects of the pandemic, supply shortages and disruptions, rising inflation, labor shortages, and other factors, markets have a had a great year.
Of course, the corollary to that statement is if you flood the economy with liquidity through a variety of means, including artificially low interest rates, trillions in stimulus, extended unemployment benefits, and other methods, interesting things will happen. Those include rising markets, and inflation, in this case, as well as several other unintended consequences.
Still, 2021 has been the year of small value, so far, anyway.
Within large-caps, while growth, as measured by the Russell 1000 Growth Index (up 28.85%), has handily outperformed value (Russell 1000 Value Index, up 21.58%), it's been a much different story in Smallville.
Within small-caps, the Russell 2000 Value Index (up 30.8%) has creamed Russell 2000 Growth (up 9.44%), by a whopping 2136 basis points.
Within micro-caps, which I find the most interesting slice of the market, the Russell Microcap Value Index (up 38.62%) is ahead of the Russell Microcap Growth Index (up 11.7%) by 2692 bps.
Of course, 11 months of outperformance by small and micro-cap value does not tell the whole story. Value has quite a way to go to get on equal footing with growth, especially with large-caps:
3-Year Performance (annualized):
Russell 1000 Growth: up 32.36%
Russell 1000 Value: up 13.18%
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Russell 2000 Growth: up 20.22%
Russell 2000 Value: up 14.18%
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Russell Microcap Growth: up 20.28%
Russell Microcap Value: up 16.82
5-Year Performance (annualized):
Here, we still see significant performance differences within large and small-caps, but a tightening within micro-caps.
Russell 1000 Growth: up 25.95%
Russell 1000 Value: up 11.38%
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Russell 2000 Growth: up 16.17%
Russell 2000 Value: up 10.73%
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Russell Microcap Growth: up 14.18%
Russell Microcap Value: up 13.4%
10-Year Performance (annualized):
Within micro-caps, value overtakes growth, but the performance difference with large-caps remains massive; again, these are annualized returns.
Russell 1000 Growth: up 20.18%
Russell 1000 Value: up 13.17%
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Russell 2000 Growth: up 15.16%
Russell 2000 Value: up 12.66%
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Russell Microcap Growth: up 14.13%
Russell Microcap Value: up 14.71%
While a lot could happen as 2021 comes to an end, it's been good to see small and micro-cap value close (in the case of micro-caps) or start to close the multi-year performance gap. The question is whether large value will be able to begin doing the same. It certainly has a long way to go, but among value investors, hope springs eternal.
