2007 Proves Underwhelming for Small Caps and Value Stocks
by James B. Cloonan
The underperformance of value stocks and smaller capitalization stocks relative to large-cap growth stocks continues.
That is reflected in the performance of the Model Shadow Stock Portfolio, which is up only 2.0% for most of 2007 (through November 30), compared to 6.1% for the market as a whole, as represented by the Vanguard 500 Index fund (see Figure 1).
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However, the Model Shadow Stock Portfolio does continue to outperform both small- and micro-cap indexes (complete data are shown in Table 1). While it seems likely that the portfolio will extend its six-year run of positive returns, it may not match the return of the total stock market for 2007.
Historically when small stocks underperform, the period of underperformance lasts only one or two years. It would be nice to know if it is going to be one or two years this time (or perhaps zero years if we catch up in the remaining weeks of December as of this writing). [For a complete description of the Shadow Stock Portfolio, see the Shadow Stock Portfolio area on AAII.com.]
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