Previously, we looked at research that showed mutual fund management largely underperforms the benchmark. But what about those famed investors that have consistently outperformed? Well, if you recall, most outperformers have a hard time replicating their success. However, for those that have, the explanation might be as simple as overweighting certain categories of investment.

Small, Value & Profitability

As you might know, US stocks have historically outperformed bonds over a long period of time.[1] This does not happen every year, but over the long-term we generally expect to see a higher rate of return for stocks than bonds. What is less well known, is that there are specific categories or ‘styles’ within stocks that have historically outperformed their counterparts over long periods of time as well. These areas include small companies, value companies & more profitable companies. [2And just like stocks vs bonds, the odds of realizing a return higher than their counterpart are never guaranteed, but according to Dimensional research they are decidedly in your favor and increase the longer you stay invested. As Vice President Weston Wellington of Dimensional funds explains, the area of value specifically lead him to rethink how he looked at markets, and you can hear him explain his rationale below. We hope you enjoy this short video, and we look forward to seeing you again!

 

[1] https://www.longtermtrends.net/stocks-vs-bonds/

[2] https://www.dimensional.com/us-en/insights/perspective-on-premiums