One Answer to the Large-Cap/Small-Cap Argument

  • SumoMe

One of the ongoing arguments among investors and financial pundits involves touting the benefits of large-cap stocks versus small-cap stocks, and vice versa.

At any given point in time it is possible to make a cogent argument that this short-term trend or that long-term trend favors large-cap stocks (or small cap stocks as the case may be).  Today let’s skip all the bickering and highlight one approach to choosing between one size versus the other.

See also The One Asset Class Per Month Strategy 

Jay’s Large-Cap/Small Cap Seasonal Strategy (JLCSCS)

First off let’s note that historically neither large-caps nor small-caps perform particularly well during certain months (think January and the summer months).  So we will allocate to intermediate-term treasury bonds during those “seasonally unfavorable” periods.

Or illustrative purpose we will use monthly index total return data for the large and small-cap stock allocations.  We will use monthly total return data for Fidelity Government Income Fund (ticker FGOVX) for the bond portion.  The monthly allocation appears in Figure 1 below.


Figure 1 – Monthly Allocations for Jay’s Large-Cap/Small Cap Seasonal Strategy

The Results

Figure 2 displays the growth of $1,000 invested using the monthly allocations shown in Figure 1 above since 12/31/19782Figure 2 – Growth of $1,000 invested using (JLCSCS) versus buying and holding both RUI and RUT; 12/31/78-10/31/16

Some key facts and figures regarding performance appear in Figure 3


Figure 3 – Performance Results


As always, the results displayed above are or “informational” purposes only and I am not recommending that anyone start trading using this approach without doing some serious homework of their own first.

Is this simple “system” the definitive approach to trading different stock capitalization sizes? Hardly.  But it might not be bad place to start either.

Jay Kaeppel

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