US Market Segment Analysis 2010-03-31
NOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. No rational person would make investment decisions based on a blog post. Please consult with your financial advisor before taking any action. If you think it is OK to make investment decisions based on a blog post, then for the love of the FSM – Stop reading my blog.
Historically the US market is around 70% large cap, 20% mid cap and 10% small cap. The market can also be divided as 50% Growth and 50% Value. Mid and Small caps tend to provide slightly higher returns over long periods of time. (As always, past performance is no guarantee of future results). However, they also tend to have volatility that is even higher. Investments in Mid Cap and Small cap segments above market norms should be reserved for investors with higher than average risk / volatility tolerance.
Below is the historical performance 6 US market segments. I divide the US market this way to try and decide where to invest money.
Data as of 3/31/10
| 12-Month Return | 3-Year Average | 5-Year Average | 10-Year Average | |
| Large Growth Average | 48.51 | -1.89 | 2.95 | -2.36 |
| Large Value Average | 50.63 | -5.94 | 1.31 | 3.34 |
| Mid-Cap Growth Average | 55.63 | -2.16 | 4.00 | -0.23 |
| Mid-Cap Value Average | 66.10 | -3.98 | 3.45 | 7.66 |
| Small Growth Average | 59.16 | -3.42 | 3.26 | 0.02 |
| Small Value Average | 71.38 | -3.90 | 3.13 | 9.12 |
This is only one source of information I generally think of it as a contrarian indicator. That is to say, the better one of the segments has done and the longer it has exceeded the long term mean the less desirous it is. As can be seen above all six US segments are UP (way up) over the past 12 months. This could be a small cause for concern. However, if you look at the 3 year average, they are all negative so the market has not been running hot for years in a row. The 12 month return only looks so good because the previous 2 years were so bad. Over 3 and 5 year time frames the performance of each segment is about the same. (within a few percent of each other).
The 10 year returns do seem to indicate under performance from growth investments with a stronger effect on Large cap vs. small cap and may indicate an opportunity. On the other hand this could be a result of the dramatic losses suffered by these segments around 9 – 10 years ago after several years of dramatic and unsustainable growth. This same long term situation existed 6 months ago. So if you would have put all of your money in growth then you would have missed some of the returns that have occurred in the value segment.
