The Long and Short of It



September 12 , 2017 | Posted by Marc Wambaugh |

The Long and Short of It

Since the beginning of the year, equity markets have been on a tremendous run. Many of the market indices are reaching new highs each day. These indices keep climbing due in large part to the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) as well as the large cap growth sector in general.

We believe, and academic research has shown that over the long term, investors can anticipate higher expected returns when invested in smaller, undervalued companies. However, as we have seen since January, larger, growth oriented stocks can outperform smaller, undervalued stocks over shorter periods of time.

The above graph shows the growth of $10,000 invested in the DFA U.S. Targeted Value Portfolio, DFFVX, since 1/1/17 (the blue line) compared to a Morningstar Large Cap Growth Index (the orange line). The graph shows the outperformance of large growth stocks relative to smaller stocks this year.  Interestingly, in 2016, the Targeted Value fund outperformed the Large Growth Index by nearly 25 percentage points (26.86% vs. 1.79%).  This further illustrates that market timing is very difficult.

Now looking at the same graph (DFFVX in blue, Large Cap Growth in orange) but changing the time frame tells a much different story. Going back to the year 2000 (DFFVX’s year of inception), you can see that the Targeted Value fund has steadily outperformed the Large Cap Growth Index. Since inception, the DFA Targeted Value fund has had an annualized return of 11.60%. The Large Cap Growth Index has had an annualized return for the same period of -1.31%.

These graphs show how important it is to maintain a disciplined, long term investment strategy. Chasing the “hot fund” or trying to pick winning stocks or managers is challenging and inefficient in our view.  Our client portfolios do have some exposure to these large growth stocks; however, we believe in the academic research that shows owning a well-diversified, low-cost portfolio of funds tilted toward the small and value factors should give investors a higher expected return over time.

We appreciate the continued confidence you have placed in us. If you have any questions or wish to discuss your portfolio allocation, please do not hesitate to contact us.


Cassady Schiller Wealth Management is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. The index results do not reflect fees and expenses and you typically cannot invest in an index.