Small cap outperformance since 1999 holds in cumulative returns, but rolling 10y Sharpe tells a different story. Most of that 600 percent gap comes from 2003 to 2006 and 2020 to 2021 windows. Mean reversion is real, but timing the regime shift is where the alpha actually lives.
Caveat worth noting: this chart is in AUD and ex Australia. The US small cap premium has been much weaker post 2010, especially once you screen for profitability. Tiny Titans framing only holds if the quality filter stays tight.
The small cap premium is real over long horizons, but the path matters for tactical books. Since 2010 the rolling 5 year alpha has actually been negative twice. Allocation timing into small caps tends to work best after credit spreads widen, not when they are tight like today.
Aggregate is compelling but the regime matters. Since 2014, US small caps have materially lagged large caps while ex US small caps held up better. The premium isn’t structural, it’s cyclical and tightly coupled to credit conditions and the rate path.
That is a very compelling reason to look at the micro caps that are also fundamentally sound. Some outliers lurk there.
Small cap outperformance since 1999 holds in cumulative returns, but rolling 10y Sharpe tells a different story. Most of that 600 percent gap comes from 2003 to 2006 and 2020 to 2021 windows. Mean reversion is real, but timing the regime shift is where the alpha actually lives.
Caveat worth noting: this chart is in AUD and ex Australia. The US small cap premium has been much weaker post 2010, especially once you screen for profitability. Tiny Titans framing only holds if the quality filter stays tight.
The small cap premium is real over long horizons, but the path matters for tactical books. Since 2010 the rolling 5 year alpha has actually been negative twice. Allocation timing into small caps tends to work best after credit spreads widen, not when they are tight like today.
Aggregate is compelling but the regime matters. Since 2014, US small caps have materially lagged large caps while ex US small caps held up better. The premium isn’t structural, it’s cyclical and tightly coupled to credit conditions and the rate path.