Overemphasizing value, growth or market capitalisation in a portfolio could result in significant underperformance in periods when some styles are not favoured, a United States study has shown.
In 1991, small-cap growth stocks soared 51.2 per cent, compared to a 24.6 per cent advance for large-cap value shares, according to data compiled by Managers Investment Group LLC.
But in 1997, that reversed. Large-cap value stocks surged 35.2 per cent, while small-caps trailed with a 6.5 per cent gain.
The figures in the report were compiled from the Russell 2000 and 1000 Growth/Value Indexes, which comprise US equities.
Applying the relative comparisons to local equities, the S&P/ASX 20 Index of Australian large-caps has lost 24.75 per cent for the year to November 6, 2008, data from Standard and Poor's website showed.
In comparison, the S&P/ASX Small Ordinaries Index of small-caps has dropped 47 per cent in the same time.
However, in 2006, the S&P/ASX Small Ordinaries rallied 28.65 per cent, while the S&P/ASX trailed with a 16.41 per cent advance.
"It is difficult to predict when the market will favour one style over another," Managers Investment Group said in the study.
"This can be dealt with through diversification across style and capitalisation."
