Large Cap Well-known boring businesses. Small Cap Unknown boring businesses.

Well-known exciting businesses.

The next Microsoft is in here somewhere!

TABLE 11.1 Total Returns (3/24/00-12/31/06)





Russell 1000 Value 69.45% Russell 2000

Russell 1000 Growth <36.31%> Russell 2000 Growth < 18.41%>

Value 172.96%

Source: Russell 1000 Value Index and Russell 1000 Growth Index.

Within such long periods there are periods of roughly one to even six years when one style will outperform the other and sometimes by a wide margin. And if you're nimble you can make a difference. Table 11.1 reveals a dramatic difference from the bull market top in 2000 through the end of 2006.

From this table the performance differential was breathtaking. However, this period was quite unique and making calculations perhaps misleading. But they are based on the actual indexes.

FIGURE 11.1 Russell 2000 Small-Cap Value ETF [IWN] Source: Chart courtesy of
FIGURE 11.2 Russell 2000 Small-Cap Growth ETF [IWM] Source: Chart courtesy of

Let's look at how ETFs linked to these indexes performed graphically using just [IWN] Russell 2000 Small Cap Value ETF in Figure 11.1 and [IWM] Russell 2000 Small Cap Growth ETF in Figure 11.2.

It would appear that IWM outperformed the data from Table 11.1. But the way performance is calculated factors in highly cumulative negative performance data from 2000-2003 around a negative 45 percent. But, from the low of 2003 to the end of the period, IWM gained 166 percent. What this means is you can fool around with numbers all you want and come to various conclusions based on selective dates you choose for your study.

Therefore when sales literature or advisors try to sell you one style versus another based on cherry-picked historical data, beware. It may not be what it seems.

Why not just blend the two? Sure you can do that but remember one thing. If you just bought [SPY] S&P 500 ETF, [VTI] Vanguard Total Market ETF, or [MDY] Mid-Cap ETF you would be getting a blend of growth and value since companies categorized in that manner are included in the component mix.

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