Opinion
Why small cap investing has underperformed over the past decade - and what Canadian investors can do about it Published December 16, 2020 Bookmark
In theory, an investment strategy with a focus on small cap and value stocks should result in returns superior to the major market indexes. After all, smaller companies have greater flexibility to respond to opportunity or adversity and their growth runway is much longer once they have a winning product or service. Plus, a screen for value should reduce the negative impact of torpedo stocks that can unexpectedly blow a hole in the portfolio return.
So much for the theory. The reality for the past decade is that both of these factors have been a drag on portfolio returns. In Canada, for the 10 years ended Dec. 1, the big cap dominated S&P/TSX Composite Index has delivered an annual total return of 5.9 per cent, while the S&P/TSX SmallCap Index total return has been 1.3 per cent over the same period. There are multiple def