• About us
    • Who we are
    • Mission
  • Contacts
  • English
    • Português (Portuguese (Portugal))
    • Español (Spanish)
    • Français (French)
  • Login
Investorpolis
[xyz-ips snippet="Banners-Publicitarios"]
No Result
View All Result
No Result
View All Result
Investorpolis
No Result
View All Result
Home Wealth and Investing Investing

Investing in large, mid or small caps: Part 1 – The capitalization classes of stocks and their long-term performance

14 de November, 2023
in Investing, Wealth and Investing
Reading Time: 6 mins read
0 0
0
Investing in large, mid or small caps: Part 1 – The capitalization classes of stocks and their long-term performance
Share on FacebookShare on Twitter

What are large, mid and small caps?

In the very long run, small caps provide higher returns than large caps

Following the decision on asset allocation, between stocks and bonds, the question arises of choosing the subclass of these assets in which to invest.

In fact, an important question facing many investors is the choice of the type of stocks or bonds in which to invest.

For equities, the first decision is the choice of the geography of the investment (world, USA, Europe, Japan, emerging markets, etc.), followed by the nature or type of companies.

This decision is also called the choice of investment styles and includes the choice between value or growth equity strategies, and small and mid-cap versus large-cap strategies, among others.

This is the topic that we will address in this article, analyzing the historical performance of these two subclasses of shares.

To complement this article, in the Tools folder, we have developed in detail some of the main indices of the world stock markets of the stocks with the largest market capitalizations, namely the MSCI ACWI for the world market, the Dow Jones IA 30, the S&P 500 and the Nasdaq in the US, and in Europe, the Eurostoxx 50 and the FTSE 100).

We also include the Russell 2000 index of U.S. small and mid-caps.

What are large, mid and small caps?

Market capitalization, or market capitalization, is a measure of the size of a company.

It is the total value of a company’s outstanding shares

The delineation between each capitalization group can vary, but is generally as follows:

Mega cap: market cap of $200 billion or more

Large cap: market cap between $10 billion and $200 billion

Mid cap: market cap between $2 billion and $10 billion

Small cap: market cap between $250 million and $2 billion

“Micro cap”: market cap of less than $250 million

Large-cap stocks account for more than 90% of the U.S. stock market, and are often seen as the top investments in investors’ portfolios.

These stocks tend to be less volatile during unstable markets, as investors prefer quality and stability and become more risk-averse in these periods.

In the very long run, small caps provide higher returns than large caps

The following chart shows the valuations of major asset classes since 1926 in the U.S.:

The highest average annual return rates were for small-cap stocks at 11.8%, which outperformed large-cap stocks at 10.1%.

It should be noted that these rates are well above the 5.2% of 10-year treasury bonds and the 3.2% of 6-month treasury bills.

In other words, the investment of $1 in 1926 appreciated by $49,052 in 2020, compared to the $11,535 reached by small caps, i.e., more than times more.

This has not only occurred in the USA.

The following chart shows the valuations of stocks of various capitalizations in the US and UK since 1926 and 1955 respectively:

Larger-cap stocks in the U.S. and U.K. had very long-term average annual rates of return lower than smaller-cap stocks.

In the U.S., small-cap stocks provided RTPs of 12.2% per annum versus 9.9% per annum for large-caps, while in the UK, small-cap stocks had RTPs of 15.4% per annum versus 12% per annum for large-caps respectively.

In the U.S., micro-cap stocks had an average return of 12.7% per year, and in the U.K., this class of shares appreciated by 18% per year.

Since the Russell 2000 index began tracking the performance of small-cap stocks in 1979, the stock index has outperformed the S&P 500 large-cap stock index:

Over the past 30 years, the reality of S&P capitalization indices has been similar to very long-term developments:

Since 1995, small caps have performed better than large caps, but in this period the best performer has been mid-caps.

The average annual rates of return were 12% in medium capitalizations, 11% in small capitalizations and 10.5% in large capitals.

In Europe as a whole, there is no such long-term information.

However, over the past 20 years, small caps have been much higher than large-caps:

Small-caps appreciated by 494% compared to 141% for large caps in cumulative terms in this period.

This is an abyssal difference, almost 4 times more, far surpassing the North American reality.

This difference in the performance of small-caps versus large-caps between Europe and the US is largely due to the composition of the various segments.

In the U.S., large caps are dominated by technology companies, while in Europe, they are companies in the financial, energy, and telecommunications sectors.

The performance of small- and mid-cap stocks compared to large-cap stocks is also closely associated with the phases of the economic cycle, as we will see in the next article.

Previous Post

Investing in money market funds: Part 4 – Who are the investors and how to invest

Next Post

Investing in Small, Medium or Large Caps: Part 2 – Features and pros and cons of stocks caps segments

Feria

Feria

Related Posts

Effects of Trump’s Trade Tariffs on Financial Investments Series: P1 – Framework
Investing

Effects of Trump’s Trade Tariffs on Financial Investments Series: P1 – Framework

8 de May, 2025
Series Investments in the Artificial Intelligence Cycle: Part 2 – The main branches of AI
Investing

Series Investments in the Artificial Intelligence Cycle: Part 2 – The main branches of AI

29 de April, 2025
2Q25 Financial Markets Outlook: Zombieconomics, or the monumental cost of Trump’s astronomical reciprocal tariffs
Investing

2Q25 Financial Markets Outlook: Zombieconomics, or the monumental cost of Trump’s astronomical reciprocal tariffs

4 de April, 2025
Thematic Investments Series: Part 3. What are the main megatrends?
Investing

Thematic Investments Series: Part 3. What are the main megatrends?

28 de March, 2025
Thematic Investments Series: Part 2.2. Disruptive technology or innovation – The domains of disruptive technology or innovation
Investing

Thematic Investments Series: Part 2.2. Disruptive technology or innovation – The domains of disruptive technology or innovation

17 de March, 2025
Investments in the Artificial Intelligence Cycle Series: Part 1 – Definition and History of Development
Investing

Investments in the Artificial Intelligence Cycle Series: Part 1 – Definition and History of Development

20 de February, 2025
Next Post
Investing in Small, Medium or Large Caps: Part 2 – Features and pros and cons of stocks caps segments

Investing in Small, Medium or Large Caps: Part 2 – Features and pros and cons of stocks caps segments

Leave a Reply

Your email address will not be published. Required fields are marked *

Trending

Effects of Trump’s Trade Tariffs on Financial Investments Series: P1 – Framework

Effects of Trump’s Trade Tariffs on Financial Investments Series: P1 – Framework

8 de May, 2025
Series Investments in the Artificial Intelligence Cycle: Part 2 – The main branches of AI

Series Investments in the Artificial Intelligence Cycle: Part 2 – The main branches of AI

29 de April, 2025
2Q25 Financial Markets Outlook: Zombieconomics, or the monumental cost of Trump’s astronomical reciprocal tariffs

2Q25 Financial Markets Outlook: Zombieconomics, or the monumental cost of Trump’s astronomical reciprocal tariffs

4 de April, 2025
Thematic Investments Series: Part 3. What are the main megatrends?

Thematic Investments Series: Part 3. What are the main megatrends?

28 de March, 2025
Investorpolis

We developed this blog because we believe that only a small learning effort is needed to make a big change in the decisions and results of our investments and financial assets.

Main categories

  • Investing Series Guide
  • Wealth and Investing
  • Retirement & Savings
  • Tools
  • More

Newsletter

Sign to our mailing list to receive updates direct to your inbox!

*We don’t spam

  • Privacy Policy
  • Cookie Policy
  • Contacts

© 2021 - Investorpolis / Powered by Delta Soluções

  • pt-pt Português
  • fr Français
  • es Español
  • en English
  • Home
  • Investing Series Guide
    • I. Goal Based Investing
    • II. Compounding & Inflation
    • III. Assets Risks & Returns
    • IV. Efficient Diversification
    • IX. Sustainable Investing and ESG
    • V. The Investor
    • VI. Assets and Investments
    • VII. Index Funds
    • VIII. Successful Investing
    • X. Kits and Tips
    • XI. Other Topics
  • Retirement & Savings
    • Retirement
    • Savings
  • Wealth and Investing
    • Investing
    • Wealth
  • Tools
    • Calculators
    • Publications
    • Sites and apps
  • More
    • Best of
    • Reviews
    • Snapshots
    • Others
  • About us
    • Who we are
    • Mission
  • Login
  • Cart

© 2021 - Investorpolis / Powered by Delta Soluções

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
Cookie configurationCookie PolicyAcceptReject
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Necessary
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
SAVE & ACCEPT

Add New Playlist

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?