Chapter 8. When to Live Large: An Asset Allocation Model for Small-Versus Large-Cap ETFs

The 1998–2005 period witnessed huge discrepancies between the performance of large- and small-cap stocks.[1] In 1998, for example, large-cap stocks (Russell 1000 Index) gained 27 percent, whereas small-caps (Russell 2000 Index) lost 3 percent. However, starting at the end of 1998 and continuing through the first quarter of 2006, the tables have turned. During this latter period, large-cap stocks have gained 23 percent, whereas small-caps have nearly doubled. (The total return of the Russell 2000 Index has been 99 percent from 1/1/1999–3/31/2006.) This example is historically extreme, but it is not unique. There have been great rewards for investors who have ...

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