StyleBox Update: Mid and Small-cap Value Outperform in 2021

The style-box updates feature the iShares ETF’s since for the mid-quarter updates, the performance data on the benchmarks is not available until the end of every month, and then reported after a day or two delay. The goal was to provide something for readers twice a quarter. Although the data isn’t shown, the Vanguard ETF series is also being tracked to see how Vanguard compares to iShares in terms of ETF returns.

From the last style-box update in mid-November ’21, (found here), both large-cap growth and value improved their return in the last 6 weeks of the year, while for mid and small-cap styles. both growth and value traded lower into year-end. Growth is still outperforming value in the large-cap sector, while value in mid and smalls outperformed for the year.

In this update, which is the above iShare ETF’s with longer-term average, annual, returns, large-cap growth has generated far superior returns than the other styles, particularly the 3 and 5-year return periods. Readers have likely seen numerous charts of “large-cap growth vs large-cap value” but these numbers highlight the return differential at the end of the last decade.

The interesting thing about this year if you look at the large-cap numbers at the top of the first spreadsheet, is that earlier in 2021, value outperformed growth through June 30 ’21 probably due to the fact that the 10-year Treasury yield peaked at 1.75% in mid-March ’21 and the increase in that rate from it’s mid-August ’20 lows near 55 basis points. This period could have been the first example of growth stocks reactions to higher interest rates.

Summary / Conclusion: In 2021, mid and small-cap value finally beat their growth brethren, but in large-cap, growth continues to be the king. Perhaps 2022 is the year, large-cap growth succumbs to “mean-reversion” in terms of longer-term returns ? Inquiring minds want to know.

Does any of this help with forward return expectations ? Take a look again at the 2nd spreadsheet above and the 3 and 5-year premium returns large-cap growth has experienced relative to mid and small-cap value. That’s 1,300 bp’s a year better for those time frames versus value.

This is the first blog update for 2022. Thanks to all readers (again) for tuning in every week.

Writing this blog forces me to stay on top of the numbers and various asset classes. I hope readers see the benefit as well.



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