Are You Holding Small Stocks? You May Not Get Big Returns

Author: Stan Luxenberg

Should you load up on small stocks? Plenty of financial advisers think so. But that could be changing.

The advisers believe in the small-cap premium -- the idea that small stocks should outdo large ones over the long term. That approach has produced sizable rewards. During the past five years, the small stocks of the Russell 2000 benchmark returned 26.6% annually, compared to 23.6% for the large caps of the Russell 1000.

However, a growing number of researchers have begun to question the persistence of the small-cap premium. Analysts note there have been long periods when large stocks outperformed. "I am highly suspicious of the small-cap effect,'" says Tim Loughran, professor of finance at the University of Notre Dame. "Large stocks outperform 50% of the time."

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