US Market Segment AnalysisPosted by Phil Ferguson on December 22nd, 2009 – Comments Off – Posted in Stock Market
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.
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 9/30/09
|12-Month Return||3-Year Average||5-Year Average||10-Year Average|
|Large Growth Average||-2.69||-3.25||1.77||-0.69|
|Large Value Average||-7.23||-6.75||0.81||2.51|
|Mid-Cap Growth Average||-3.19||-2.87||3.1||2.83|
|Mid-Cap Value Average||-2.84||-4.39||2.83||7.39|
|Small Growth Average||-5.23||-4||1.94||2.94|
|Small Value Average||-6.22||-4.68||2.29||8.35|
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 down over the past 12 months. Large Growth has the smallest loss of 2.69% and Large Value the largest 1 year loss of 7.23%. At this time the 1,3 and 5 year averages do not show any significant variance from each other and all are far below the expected long term average return of 10-11% per year.
The 10 year returns do seem to indicate under performance from large caps and growth investments 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.